Grier Food in Lexington, Kentucky, manufactures and markets snack foods. Deela Riley manages the company's fleet of 180 delivery trucks. Riley has been charged with "reengineering" the fleet-management function. She has an important decision to make.
• Should she continue to manage the fleet in-house with the five employees reporting to her? To do so, she will have to acquire new fleet-management software to streamline Grier Food's fleet-management process.
• Should she outsource the fleet-management function to Fleet Management Services, a company that specializes in managing fleets of trucks for other companies? Fleet Management Services would take over the maintenance, repair, and scheduling of Grier Food's fleet (but Grier Food would retain ownership). This alternative would require Riley to lay off her five employees. However, her own job would be secure, as she would be Grier Food's liaison with Fleet Management Services.
Assume that Riley's records show the following data concerning Grier Food's fleet:
Book value of Grier Food's trucks, with an estimated five-year life. . . . . . . . . . . . . . . $3,100,000
Annual leasing fee for new fleet-management software . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,600
Annual maintenance of trucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 166,000
Fleet Supervisor Riley's annual salary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,000
Total annual salaries of Grier Food's five other fleet-management employees. . . . . . . . $ 150,000
Suppose that Fleet Management Services offers to manage Grier Food's fleet for an annual fee of $280,000.
Which alternative will maximize Grier Food's short-term operating income?