Scotts Spreader Sourcing Decision

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Scotts Spreader Sourcing DecisionBusiness OpportunityMove Production to ChinaAlternativesRemain in the USWas the right decision in 2000Productivity improvements 6% cost reduct ...Productivity improvements 6% reductions ...190 employeesTrained in lean managementWorkforce-driven improvement projectsBeing trained as machine techniciansSignificant general/manufacturing SkillQuality Manager = Design EngineerCarefully managed impressions/attitudesAutomation efforts in progressCut landed costsComparable to ChinaHigher Electricity CostsOffset by shipping costsIn-mold LabelingKey part of planned marketing campaignOpportunity to apply to other Scotts pro ...Outsource to ChinaAlready outsource complex componentsInjection moulding = easyMany suppliersIn Mold LabelingWould require technology transferWould require Scotts to provide machiner ...Would require new molds$400K In new molds if moving to ChinaLabor Rates$0.91/HrIncreasing 40% (or more) or next 5 yearsProductivitySomewhat LowerFreight Costs$8 Million AnnuallyLess a percentage of the $1M currentIncreasing at 3% rateLead time8 weeks of inventory stockpileTransition costsTravel costs/ management timeWeekly Conference calls w/suppliersDelayed detection of quality issuesCurrency RiskPolitical RiskDirect investment in China$8 Million CostsOne Year to accomplishOffered direct controlCurrency RiskBenefitsCostsFinancial AnalysisDiscount rate 15%Capital improvements investment $500K An ...Capital improvements investment $300K An ...$400K In new molds if moving to China$460K increased inventory to offset lead ...Plastic Resin - same cost world overRegrind process savings $100K annuallyUs Production FacilityLabour Costs195 X 2080 * 16.2516 X $125,000Increasing at 3% annuallyOffset by production improvements for th ...Electricity Costs8M Kilo-watt Hrs$0.16/Kilo-watt hr$0.025 surcharge per hour for 3 yearsCosts expected to increase 50% by 2017Partially offset by process improvementsNet increase 25% over 10 yearsOverhead costs$1 MillionWould revert back to corporate30% of manufacturing costs (direct labor ...AssumptionsSensitivity AnalysisProject DescriptionImplementation PlanRecommendation
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Scotts Spreader
Sourcing Decision
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Business Opportunity
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Move Production to China
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Alternatives
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Remain in the US
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Was the right decision in 2000
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Productivity improvements 6% cost reductions
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Productivity improvements 6% reductions over next 5 years
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190 employees
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Trained in lean management
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Workforce-driven improvement projects
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Being trained as machine technicians
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Significant general/manufacturing Skill
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Quality Manager = Design Engineer
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Carefully managed impressions/attitudes
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Automation efforts in progress
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Cut landed costs
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Comparable to China
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Higher Electricity Costs
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Offset by shipping costs
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In-mold Labeling
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Key part of planned marketing campaign
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Opportunity to apply to other Scotts products
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Outsource to China
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Already outsource complex components
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Injection moulding = easy
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Many suppliers
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In Mold Labeling
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Would require technology transfer
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Would require Scotts to provide machinery
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Would require new molds
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$400K In new molds if moving to China
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Labor Rates
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$0.91/Hr
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Increasing 40% (or more) or next 5 years
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Productivity
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Somewhat Lower
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Freight Costs
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$8 Million Annually
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Less a percentage of the $1M current
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Increasing at 3% rate
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Lead time
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8 weeks of inventory stockpile
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Transition costs
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Travel costs/ management time
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Weekly Conference calls w/suppliers
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Delayed detection of quality issues
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Currency Risk
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Political Risk
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Direct investment in China
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$8 Million Costs
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One Year to accomplish
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Offered direct control
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Currency Risk
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Benefits
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Costs
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Financial Analysis
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Discount rate 15%
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Capital improvements investment $500K Annually (US Plant)
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Capital improvements investment $300K Annually (China Plant)
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$400K In new molds if moving to China
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$460K increased inventory to offset lead time
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Plastic Resin - same cost world over
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Regrind process savings $100K annually
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Us Production Facility
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Labour Costs
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195 X 2080 * 16.25
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16 X $125,000
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Increasing at 3% annually
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Offset by production improvements for the next 15+ years
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Electricity Costs
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8M Kilo-watt Hrs
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$0.16/Kilo-watt hr
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$0.025 surcharge per hour for 3 years
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Costs expected to increase 50% by 2017
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Partially offset by process improvements
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Net increase 25% over 10 years
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Overhead costs
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$1 Million
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Would revert back to corporate
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30% of manufacturing costs (direct labor/electricity)
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Assumptions
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Sensitivity Analysis
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Project Description
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Implementation Plan
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Recommendation