Scotts Miracle Gro Outsourcing Decision
Shivam Patel
July 22, 2013
Tom York
Intro to Supply Chain Management
Scotts Miracle-Gro Outsourcing Decision:
Long Term versus Short Term Costs
The largest company in the North American lawn and garden industry, Scotts Miracle-Gro, which was based in Marysville, Ohio, formed through a merger in 1995. A corporation of great success, with $2.7 billion dollars of net sales in 2007 had a difficult assessment to make between outsourcing a contract manufacturer in China or continuity of manufacturing in the United States.
In 2000, Scotts management decided to lease a 412,000-square foot facility in Temecula, California after finally realizing a three independent building site was not cost effective. The annual cost of the new property was $3 million dollars and they were contracted for 15 years. In the five years between 2002-2007 Scotts Miracle-Gro was greatly prosperous in improvement of productivity through continuous investment in product and process innovations. An example of this kind of improvement was the development of a new hand spreader assembly process. The redesigned automated assembly line that allowed the plant to develop and build in-house required four people in comparison to six for the old one. Temecula Plant was the pioneer of “in-mold labeling” which allowed the labels to be molded into the plastic product. Raw materials, labor, electricity, and overhead (including building lease), were the main cost drivers of this plant. Although Scotts used a discount rate of 15 percent they spent historically $500,000 dollars per year in building repair/maintenance. Since a contract manufacturer had lower labor costs and less incentive to invest in capital improvements, it was estimated they would only spend $300,000 dollars.
The alternative to Scotts Miracle-Gro keeping that plant open was outsourcing to a contract manufacturer in China. They already had experience sourcing some components for its spreaders. The labor cost was a staggering
July 22, 2013
Tom York
Intro to Supply Chain Management
Scotts Miracle-Gro Outsourcing Decision:
Long Term versus Short Term Costs
The largest company in the North American lawn and garden industry, Scotts Miracle-Gro, which was based in Marysville, Ohio, formed through a merger in 1995. A corporation of great success, with $2.7 billion dollars of net sales in 2007 had a difficult assessment to make between outsourcing a contract manufacturer in China or continuity of manufacturing in the United States.
In 2000, Scotts management decided to lease a 412,000-square foot facility in Temecula, California after finally realizing a three independent building site was not cost effective. The annual cost of the new property was $3 million dollars and they were contracted for 15 years. In the five years between 2002-2007 Scotts Miracle-Gro was greatly prosperous in improvement of productivity through continuous investment in product and process innovations. An example of this kind of improvement was the development of a new hand spreader assembly process. The redesigned automated assembly line that allowed the plant to develop and build in-house required four people in comparison to six for the old one. Temecula Plant was the pioneer of “in-mold labeling” which allowed the labels to be molded into the plastic product. Raw materials, labor, electricity, and overhead (including building lease), were the main cost drivers of this plant. Although Scotts used a discount rate of 15 percent they spent historically $500,000 dollars per year in building repair/maintenance. Since a contract manufacturer had lower labor costs and less incentive to invest in capital improvements, it was estimated they would only spend $300,000 dollars.
The alternative to Scotts Miracle-Gro keeping that plant open was outsourcing to a contract manufacturer in China. They already had experience sourcing some components for its spreaders. The labor cost was a staggering