Case: Scotts Miracle-Gro (the Spreader Sourcing Decision) Essay

1069 Words Apr 21st, 2012 5 Pages
Case: Scotts Miracle-Gro (the Spreader Sourcing Decision)
1. What are the strategic risks and benefits of outsourcing production of the Temecula plant to contract manufacturers in China?
• Significantly low cost supply from contract manufacturers: Labor, electricity (government subsidy), overhead
• Some costs are expensive: freight cost from China, inventory (lead-time increase because of shipping), and quality control (testing shipped products from China in the US require some cost; time and money)
• Exposure of the know-how of “in-mold labeling” (need to provide skill & knowledge to suppliers)
• Losing the ability of process innovation
Huge benefit of supply from contract manufacturers from China is the significant
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Furthermore, there might be constraints of the outsourcing option, which prevent Bowcombe to think the outsourcing option positively. He might want to his position as the director of operations of Scotts’ Temecula plant. He might be afraid of laying off the 195 production workers by shutting down Temecula plant. He might think of the outsourcing of the production as a denial of what he has accomplished through the production improvement at Temecula. According to the agency theory, these thoughts would conflict with the Scotts’ best interest, which is the pursuit of their long-term profitability. Thus, we should keep in our mind that his thoughts might be biased against the corporate best interest.
In conclusion, as long as there would not be further significant risks, they should move their production of spreader to China. The offshore production by Scotts might be another fine option, but I would say it is too costly for this simple spreader production in terms of time and money. I would not see cost or technical advantage compare to the outsourcing.

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