Make vs Buy Essay
The Liquid Chemical Company manufactures and sells a range of high-grade products. Many of these products require careful packaging. The company has a special patented lining made that it uses in specially designed packing containers. The lining uses a special material known as GHL. The firm operates a department that maintains and repairs its packing containers to keep them in good condition and that builds new ones to replace units that are damaged beyond repair.
Mr. Walsh, the general manager, has for some time suspected that the firm might save money and get equally good service by buying its containers from an outside source. After careful inquiries, he has approached a firm specializing in container production, …show more content…
Duffy gave Walsh a number of considerations to think about before he closed the department: “For instance,” he said, “what will you do with the machinery? It cost $1,200,000 four years ago, but you’d be lucky if you’d get $200,000 for it now, even though it’s good for another five years. And then there’s the stock of GHL (a special chemical) we bought a year ago. That cost us $1,000,000, and at the rate we’re using it now, it’ll last another four years. We used up only about one-fifth of it last year. Dyer’s figure of $700,000 for materials includes $200,000 for GHL. But it’ll be tricky stuff to handle if we don’t use it up. We bought it for $5,000 a ton, and you couldn’t buy it today for less than $6,000. But you’d get only $4,000 a ton if you sold it, after you’d covered all the handling expenses.”
Exhibit 4.13: Liquid Chemical Company: Container Department
Walsh also worried about the workers if he closed the department. “I don’t think we can find room for any of them elsewhere in the