Read the case information, and then, using the assumptions given
after an introductory paragraph, analyze the make-or buy decision, and then provide a detailed
report recommending either the make or buy decision.
The paper should conclude with a summary paragraph that answers the question, “why should anyone
care” about this situation.
Garden Basket Salad Dressing is a consumer packaged goods food company that manufactures premium salad dressings. The company has enjoyed strong sales and regional loyalty east of the Mississippi River. The company manufactures salad dressing in three strategic areas: shelf stable retail, refrigerated retail, and refrigerated food service. The company operates three manufacturing plants: one in Rochester, NY that is attached to corporate headquarters; one in Columbus, OH, and one in Orlando, FL. The Rochester, NY plant is considered to be in poor physical condition and in need of significant capital investment. The Columbus, OH plant is a new plant that can run both the retail refrigerated lines and the food service lines. The Orlando, FL plant has the capability to run all three product lines, but the refrigerated production line is suffering from customer service issues due to low run rates due to mechanical failures.
The make-versus-buy decision:
Garden Basket Salad dressing is expanding westward with a strong demand forecast for their refrigerated products west of the Mississippi. To meet the added customer demand, Garden Basket Salad Dressing is outsourcing more and more of its production to a co-packing company called Valley To Valley Salad Dressing. Garden Basket Salad Dressing is now faced with either upgrading and expanding their own operations with one production line, two production lines, or entering into a long-term co-packing agreement with Valley to Valley Salad Dressing.
Make and buy information is shown in the table below. Internal production costs were obtained from manufacturing and cost accounting; information on the cost to buy was gathered from competitive quotes from Valley to Valley Salad Dressing.
• Demand is estimated at 250,000 units over the next year (1,000 units/day, 250 working days/year).
• Variables include cycle time, labor costs, overhead costs, material costs, transportation costs, and profit margins.
• Valley to Valley Salad Dressing can provide a slightly higher quality product, but requires a 14 day lead time on all orders.
• The F.O.B. purchase price for all units from Valley to Valley Salad Dressing into Garden Basket Salad Dressing is $750,000; receiving and inspection cost is $35,000.
• Annual order processing cost is $5,000.
Overhead Allocation Base Direct Labor
Rate allocated 115%
Output Units/day 1000
Work days/year 250
Dressing/unit 455 gr.
Dressing Costs Dressing cost/unit $1.00
Cost of New Production Line $285,000
Capital allocation/year 1
Residual value 0
Labor Employees/line 2
Work hours per year 2083
Plant Size/square foot 100,000
Space required for new line 1000
Cycle time 30