Trail Frames Chassis: Insourcing/Outsourcing Decision

Topics: Contract, Design, Transaction cost Pages: 2 (543 words) Published: November 2, 2012
Trail Frames Chassis known as TFC are located in Elkhart, Indiana. They are a well-known and innovative manufacturer of motor homes that have great demand due to the way in which they are styled and built. They have recently been struggling to keep up with the demand due to their increasing lead time. They have been approached by a company called computer-image who will be taking over the designing process of the motor homes which is the current bottle neck time and if it is reduced then meeting the customer’s demand will become a lot easier and their production will become more efficient. Computer-Image’s proposal comes with a contract of 3 years which can be cancelled but with a 45 day warning before cancelling however by not outsourcing they will not need any kind of legal contract because everything done in the firm is internal. The cost with them will be $265 cheaper than the cost per chasses with insourcing, it would only cost $225 compared to $490. The number of chasses that can be produced per year is also more favorable with their outsourcing option. They can get from a minimum of 1000 chasses to 2500 maximum which is perfect considering that they expect a demand for 1250 and they can still keep expanding their market share to double in the time that this contract is valid however they cannot drop below 1250 chasses. Internally they do not have a minimum limit and maximum of 2000 which they can’t exceed which limits growth more than their outsourcing option, and adding that minimum could motivate the employees to reach higher targets and result in growth. The cost for Computer Image to do the designing is higher than TFC’s by $100,000 because it will be $300,000 but this is an extra cost that’s worth paying since this company is a professional company and there will be less room for error and with them doing it TFC’s employees can focus on meeting the higher demand and providing better customer service. This company will also be using advanced technology...
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