Team Economic Analysis Make In-house vs Outsource 5

Team Economic Analysis: Make In-house vs Outsource (5 -Year Plan) Organization, tech, summarizing: Chris Koszo Holly Miller Liliana Raigosa

Problem Own an engineering firm… Print engineering drawings in-house? Outsource print jobs?

In-house HP 4000 -Series Plotter Considerations • Have to purchase • Ink Costs • Operator costs • Salvage value • Space Benefits • Fast turnaround time • Great quality control Drawbacks • High initial cost • Operating costs • Maintenance • Floor space needed

Outsource To Mission Reprographics Considerations • No initial cost (pay-as-you-go) • Have to proof • Need delivery • Our firm not self-reliant Benefits • No initial cost • No printing hassles • No floor space needed Drawbacks • Slower turnaround • Reliance on delivery • Questionable quality

Basic costs we are comparing Outsource In-house Purchase price Supplies cost Maintenance cost Operating cost Operator cost Salvage value Inflation Base printing prices Additional costs Tax Shipping Inflation

Basic Assumptions 5 -Year timeframe for analysis 6, 000 (24 x 36) pages printed annually In-house and outsource = same product Steady 3. 00% inflation rate

In-house Costs Per-Year • Buy plotter @ $12, 000 (pay off in 5 years =($3, 329) @ 12% interest)------------- • Maintenance (cleaning & parts/Labor)--- ≈($450) • Supplies (Ink, Heads, Paper)-------- ≈($5, 400) • Operation (Manpower, Utilities)------ ≈($620) • 5 -Year Salvage Value-------------- ≈ $3, 000 Total 5 -year Cost =($45, 954)

Outsource Costs Per-Year • Base Bond prints (6, 000 prints @ $1. 20)-- ≈($7, 600) • Plot files----------------------- ≈($360) • Staples------------------------ ≈($420) • Sales Tax----------------------- ≈($587) • Shipping----------------------- ≈$880 Total 5 -year Cost =($49, 700)

What’s the best deal? Clearly, in-house costs less per project length (5 years) $45, 954 vs $49, 700 Without sensitivity analysis, in-house is the better choice

Sensitivity Analysis Winner • Varying interest rate (3. 00% default) Down to 2. 50% OR up to 3. 50%----------- In-house • Supply cost goes up ($5, 048 default) Up to $6, 000 ------------------------ Outsource • Maintenance cost goes up ($450 default) Up to $600 ------------------------- In-house • Base printing and additional costs fall Down $. 20 per-page and $. 15 per staple------ Outsource • Plotter credit int. rate goes up (12% Default) Up to 19%-------------------------- Outsource

Conclusion After doing sensitivity analysis, in-house is still a better choice. Outsourcing would most likely only become a better choice if print shops started charging around 15% less (perhaps due to recession becoming really bad)

Resources Holly’s records, invoices etc. Mission Reprographics Plotter retailers (Internet, local shops) Job statistics & postings for “print machine operators”