Scott Miracle Grow Speader; Make or Buy

Scott’s Miracle-Gro has a plant in Temecula, CA that produces seed spreaders. Management is deciding if it should keep the Temecula plant open or if it should outsource manufacturing either to mainland China or offshore China. Before Miracle-Gro became Scott’s Miracle-Gro, they outsourced to contract manufacturers for production. Scotts manufactured their spreaders since it acquired Republic Tool and Manufacturing. Scott’s Miracle-Gro manufacturing facilities have a plant in Temecula, CA. The Temecula plant improved productivity, efficiencies, and also different innovations including a new assembly process for their hand spreader. Also, they invented an in-mold labeling process that produced a label that did not fade, scratch, or peel off. Despite what the Temecula plant had done, management was looking to see if they could save money by outsourcing the full operation. The plant manager wanted to keep the Temecula plant open and felt that if the production was moved to China that there would be quality problems along with high shipping costs, and extra administrative costs could erase any economic benefit from outsourcing to China. Another alternative to outsourcing to China was building a Scotts-owned facility plant in China. This option would help keep the proprietary processes in the hands of Scott’s Miracle-G ro. However, the disadvantages associated with moving to China stated above (poorer quality, high shipping costs), would still be a negative. The problem is what should Scott’s Miracle-Gro do. We did a NPV analysis focusing on the 4 Cost drivers for the Temecula plants which are raw materials, labor costs, electricity costs, and overhead costs and compared them to what it would cost in China. The NPV for the Temecula plant is $94,826,678 (screenshot of spreadsheet in appendix). The NPV for China mainland (offshore NPV would be close to mainland China except for initial start-up costs, etc..) is $90,070,804 (screenshot of