do a cost analysis to evaluate karas options

division Case Marshall Insurance Company Kara Murphy, purchasing manager with Marshal Insur- MARSHALL INSURANCE COMPANY ance Company (Marshall), in Spokane, Washington, was The Marshall Insurance Company was a large. publicly evaluating a proposal submitted from David Callum, from held, personal lines property and casualty insurer Gilmore Printing (Gilmore). David was proposing that Founded in 1948, it had $73.5 billion in total assets. Gilmore take responsibility for managing all forms and The Marshall Automobile Club (MAC) was a printed materials inventory for the Marshall Automobile of Marshall that provided roadside assistance services Club. Kara could see the advantages of outsourcing man- to its clients 24 hours a day. 365 days a year. Its more than 750,000 clients included both individuals and agement of printed materials, but she remained concerned that this arrangement would not provide the service that corporations. clients and employees had come to expect. It was Thurs- MAC provided services to two customer groups, corporate day, June 12, and David was expecting a response from Kara on Tuesday, June 17, during a meeting scheduled for clients, such as original equipment automotive manufacturers (OEMs) who provide free roadside assistance plans with new that afternoon istration tool or by completing a form at a local Marshall of fice. Payment was typically made using a credit card. OEM clients sent their membership information to MAC daily in encrypted data files. Both individual and corporate client along with an information kit that included a welcome let. Chapter 5 Make or Buy, Insourcing, and Outsourcing 129 vehicle purchases and individuals for retail clients). Individ back-office operations. He indicated that the typical fee was wal members could choose from a variety of plans for families approximately $3,00 per kit, including mailing costs. Tas reational vehicles. In addition to traditional roadside services, interest from Kara in pursuing the proposal; at that time. Kuna that provided coverage for cars, trucks, motorcycles, and toc purpose of the meeting on Tuesday was to see if there are , a travel reserva would need to provide David with details regarding annual tion service, and trip interruption insurance. Individual clients would join MAC through an online reg. volumes and materials involved. Kara could see the advantages of outsourcing manage ment of the storeroom operations and kit assembly. Of fice space was at a premium at Marshal, and the storeroor could easily be converted to other uses. The headache membership information was processed at the Spokane of associated with ordering materials and maintaining inver fice, where membership cards were prepared and sent out tory records could be eliminated. However, Kara did have concerns. First, she was susp ter, handbook, various promotional materials, and a keychain business for MAC. Although an important supplier. Gilme cious that Gilmore was looking to take over all the printin Kits were customized for each clients in some cases us- ing OEM letterhead if the member was joining as part as a was currently responsible for approximately 30 perce new vehicle purchase plan. Anywhere from 2,000 to 3,000 arrangement proposed by David, Gilmore would take o of the printing purchases for MAC. Under the outsourci kits were assembled each week, which took the time of two existing contracts with Marshall suppliers, but as thi full-time staff. It was common to have more staff work on kit assembly in periods of strong demand. Storeroom staff were would do the printing. contracts expired, it would be up to Gilmore to decide w paid $900 per week plus benefits. Secondly, timely processing of client membership ce Kara's responsibilities included managing the 3.000 and kits was critical. The expectation was that these matei square foot storeroom, where printed materials were stored would be processed within 24 hours, Kara was worried al and kits were assembled. In addition to materials for distri- maintaining service levels under an outsourcing arranger bution to new clients, other printed materials included MAC with Gilmore. Furthermore, client information was confi marketing brochures and promotional materials. In total, more tial, and Kara had concerns about security and ensuring than 250 different printed products were held in inventory. In Gilmore did not use the MAC client database for other order to take advantage of discounts from printing suppliers. poses, such as advertising and promoting products and MAC had four to six months of inventory for many products. vices for other customers. THE GILMORE PROPOSAL PREPARING FOR THE MEETING During a meeting the previous week, David Callum proposed Kara felt that the proposal from David had meri to Kara that his company take responsibility for managing she wanted to give it careful consideration. As st forms and printed materials for MAC. The proposal indicated amined the information he had left with her, Kara that Gilmore would manage relationships with printing sup- dered how to proceed. Were the risks worth the po pliers, including inventory management, kit fulfillment, and problems? What questions should she ask at them distribution to clients. David described how they were pro- on Tuesday? And were there any conditions she viding this service to other large corporate clients, in a range place on the arrangement with Gilmore if they of industries, that were interested in eliminating manual proceed