Scotts Miracle-Gro: the Spreader Sourcing Decision

Topics: Costs, Scotts Miracle-Gro Company, Cost Pages: 12 (3502 words) Published: May 18, 2011

This paper provides a case analysis and case solution to an Ivey School of Business case study on Scotts Miracle-Gro, the biggest company in North America’s lawn and garden industry and the world’s leading supplier and marketer of consumer lawn and garden care products (Gray & Leiblein, 2008, p. 1). The time setting for the case is the summer of 2007. The case focuses on questions about where to optimally locate Scotts’ manufacturing operations for its fertilizer spreaders.

Based in Marysville, Ohio and with a history dating back to the 1868 founding of the Scotts Company, the contemporary Scotts Miracle-Gro Company was created by a 1995 merger of The Scotts Company (known for its grass seed, fertilizers and fertilizer spreaders) and Miracle-Gro (a leader in the lawn and garden care chemical industry). While Miracle-Gro historically outsourced all production to contract manufacturers, Scotts had been manufacturing its spreaders since its 1992 acquisition of Republic Tool & Manufacturing Company.

Since 2001, Scotts’ manufacturing facilities (which focus on spreader production) have been located in a 412,000 square foot facility in Temecula, California. Under the leadership of Bob Bawcombe, plant director of operations, the Temecula plant (which employs 195 workers and 16 salaried employees) has achieved significant productivity improvements (averaging 6% per year), efficiencies, and also some important innovations including a new hand spreader assembly process and an automated assembly line. In addition, the Temecula plant pioneered the use of “in-mold labeling” on its injection molding of its spreader product which produced a high-quality, scratch- and fade-proof label and was far superior to the traditional “hot labeling” process.

While Bawcombe believed that the domestic production at Temecula was critical to process innovation and product quality, management at headquarters were unhappy about the high labor and energy costs at Temecula and as a resulting pushing for production to be moved offshore to a low-cost venue such as China. Bawcombe felt it would be difficult if not impossible to move the proprietary in-mold labeling process offshore, and argued that quality problems, high shipping costs, and extra administrative costs would erase any benefits of outsourcing manufacturing to China or elsewhere. Meanwhile, management continued to press for the closure of the Temecula plant, and Bawcombe, regardless of his preference to keep Temecula open, was determined to do what was in the best interest of Scotts. As an alternative to outsourcing (or to keeping production at Temecula), Bawcombe was also considering the possibility of establishing a Scotts-owned production plant in China. Problem Statement

Closing down the Temecula plant and outsourcing or offshoring Scotts’ spreader production appears to present opportunities for significant cost-savings. However, it may be that high shipping costs and other costs and disadvantages associated with outsourcing or offshoring will effectively negate the apparent benefits of shutting down Temecula and moving to a low-cost location. The core problem thus involves deciding where to optimally locate the spreader production in order to best serve Scotts’ interests and the interests of its key stakeholders. Problem Analysis

Cost Factors
While headquarters is focusing on the potential cost advantages (looking in particular at the differences in labor and energy costs) of closing down the Temecula plant and moving manufacturing to China, there are other factors to consider besides immediate cost savings. Important factors to consider include production quality, control over manufacturing, proprietary rights (in the case of the labeling process), the need to carry a safety inventory because of long shipping times, responsiveness to market, impact on existing Scotts...
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