Deciding whether to keep outsourcing or in-source PCBs
Stryker Corporation has 3 different options regarding the supply of needed PCBs. Option 1: contemplates the fact of keeping the same suppliers but with significant changes in order to assure continuous supply of PCBs and quality. No investment is needed. Option 2: establishing a partner with a single supplier. This way there would be a sole supplier for Stryker established in a new facility near them, this would give more certainty and control over continuous supply and quality standards. Again, no investment is needed. Option 3: in-source the PCB’s, there is a project for investing and owning a plant for producing their own PCB’s, this way they would assure a continuous supply and have 100% control over quality standards. In this case, there is a big amount of capital that should be invested, which is needed to be analyzed in order to see whether it is viable for the company or not. The case present several information regarding expected production costs for in-sourcing and expected purchases for outsourcing. Since there is no projected information of Income Statement, then the only cash flow analysis that can be made is by comparing the efficiency gained by in-sourcing the PCBS compared to the costs of keep buying the PCBs. The case contemplates the projected comparison from 2004 to 2009 of the costs of buying PCBs from an external supplier and the costs of making the PCBs. What we will analyze is the positive cash flow that is derived from the cost improvement of making the PCBs compared to outsourcing them. The sum of these annual savings should be a positive cash flow for the company via a cost reduction. In Exhibit 2, the case presents the comparison of the costs incurred between outsourcing and in-sourcing the PCBs. The in source cost of production contemplates Depreciation Expense as a part of Fixed Cost, what we will do is subtract out of the Fixed Cost all of the Depreciation...
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