An analysis of the costs between manufacturing in Temecula, CA and in China show that Scotts Miracle-Gro can save between $4.6 million and $4.8 million per year by using a contract manufacturer. See Exhibit 1 Cost Analysis. However, the Temecula plant is currently innovating more efficient strategies for obtaining energy and increasing manufacturing productivity. These ongoing improvements will reduce labor and overhead costs per unit while maintaining control of quality and processes in Temecula.
As of 2007, a goal was set in place to automate the Temecula, CA plant as much as possible. This kind of plant improvement would increase production and quality control far above that of a contract manufacturer who has little incentive to invest in such technologies. Increased quality control and productivity leads to lower costs and tighter cash flows.
Maintaining manufacturing in-house also retains the relationship that Scotts Miracle-Gro has between its manufacturing and R&D departments. This relationship allows the company to have collaboration between the two areas of expertise which leads to more cost effective methods of designing products for manufacture.
The savings on Chinese labor and electricity are great, but the additional $8 million in transportation costs and $460,000 in required yearly safety stock inventory carrying costs quickly diminish the benefits. The left over savings do not offset the