File Home Insert Draw Page Layout Formulas Data Review View Automate Help Comments Share @ PROTECTED VIEW Be careful-files from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View. Enable Editing X A1 viX fx Year A B C D E F G H J K L M N O 1 Year 0 1 2 3 4 5 6 7 8 9 Maintenance 3 Sales 4 Selling price 5 Raw material 6 Packing material 7 Labor-manufacturing 8 Labor-packing 9 Overhead&depreciation 10 Total cost 11 Cash flow 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 maintain upgrade outsource Ready + 100% 72.F Q Search O hp 9X X 1:03 AM Clear 9/4/2025File Home Insert Draw Page Layout Formulas Data Review View Automate Help Comments Share @ PROTECTED VIEW Be careful-files from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View. Enable Editing X A1 viX fx Year A B C D E F G H J K L M N O 4 Year 0 1 2 3 4 5 6 7 8 9 2 Upgrade cost Sales (boosted) Selling price 5 Raw material 6 Packing material 7 Labor-manufacturing 8 Labor-packing 9 Overhead&depreciation 10 Total cost 11 Cash flow (boosted) 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 maintain upgrade outsource Ready + 100% 72.F Clear Q Search hp $ 9 x 9 X 1:04 AM 9/4/2025File Home Insert Draw Page Layout Formulas Data Review View Automate Help Comments Share PROTECTED VIEW Be careful-files from the Internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View. Enable Editing X A1 VIXfx Year B C D E F G H J K L M N 1 Year 0 1 2 3 4 5 6 7 8 9 2 Tooling 3 Maintenance 4 Sales (boosted) 5 Selling price 6 Raw material Packing material 8 Labor-manufacturing 9 Labor-packing 10 Sourcing cost 11 Overhead&depreciation 12 Cost 13 Cash flow (boosted) 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 maintain upgrade outsource Ready + 100% 72.F Q Search O hp 9X X 1:04 AM Clear 9/4/2025Case 5-1 Garland Chocolates Shanti Suppiah, director of operations at the Garland Choc- GARLAND CHOCOLATES olates plant in Durham, North Carolina, was preparing for a team meeting scheduled for Monday, March 18, to de- Headquartered in London, UK, Garland Chocolates cide what to do about declining margins for the Edgeworth (Garland) was a leading global food manufacturer with an- Toffee brand. Options were(to invest in new equipment or nual revenues of $3 billion. The company produced a wide outsource manufacturing and packing. It was Wednesday, range of chocolate and confectionary, products, under more March 12, and Shanti needed to prepare her analysis and than 65 brands. It operated more than 50 plants globally, in- develop a recommendation prior to the meeting. cluding eight plants in the United States. Garland's productsChapter 5 Make or Buy, Insourcing, and Outsourcing 127 were among the leading brands in the industry, and the Dur ham plant manufactured 20 product lines that were distribe in an effort to spur consumer interest in the brand, marketing uted to retail customers in North America, including grocery was proposing a new marketing strategy that included a face- store chains, boutique candy shops, and convenience stores. lift for the packaging. However, the new packaging would re- Garland's brands were managed by cross-functional quire a different type of packing technology. John Slaughter. teams with representatives from sales and marketing, op- the representative from marketing on the Edgeworth Toffee erations, finance, engineering, purchasing, and distribution. team, felt that the introduction of new packaging combined Each team was governed by corporate goals for growth, prof- with a new marketing campaign could deliver as much as a itability, and brand management, but was given significant 20 percent increase in sales. It was unclear to Shanti whether autonomy to make strategic and tactical decisions in order to the new marketing strategy would be enough to stimulate in- achieve their business performance objectives (BPOs). creased sales, or if the product was mature and a decline in The competitive nature of the industry placed an demand was inevitable. upper limit on prices, so margins were determined by production and supply chain efficiencies. Consequent- THE MANUFACTURING AND ly, cost control and continuous improvement were high PACKING LINE REPLACEMENT priorities. The company's enterprise resource planning OPTIONS (ERP) system generated weekly BPO reports for team members. The accounting department set standard costs for each product line annually. Exhibit 1 provides the standard THE EDGEWORTH TOFFEE BRAND costs for Edgeworth Toffee, and Exhibit 2 shows actual operating performance data for the manufacturing and Production of Edgeworth Toffee was a two-step process: packing lines. As shown in Exhibit 2, the packing line manufacturing and packing. The product was manufac was operating at 48 percent efficiency, and the scrap tured in two formats. The first format was a fixed-size, rate was nearly 10 percent. Annual maintenance costs retail-ready pack, which contained a half-pound of toffee. on the packing line were approximately $18,000 per The second format was a 10-pound bulk package that was year and expected to increase by at least 25 percent in placed in stores so that customers could select the amount the next 12 months. of toffee they wanted and self-pack the product} Produc- Working with Ian Haase, purchasing manager at the tion of the fixed-size format was approximately 2,500 cas- Durham plant and a member of the Edgeworth Toffee es a year, compared to approximately 3,000 cases a year team, Shanti obtained an estimate of $140,000 for the cost of the bulk format. Both formats sold for $145 per case. of replacing the two packing lines for Edgeworth Toffee, There were two dedicated packing lines for Edgeworth including installation. It was expected that the new equip- ment would be able to achieve the BPO efficiency and Toffee, one for each format. However, the packing lines had scrap rate targets and be able to accommodate the new long outlived their useful lives, and efficiencies had declined packaging that marketing was recommending. in recent years (see Exhibit 1). Furthermore, sales of Edge- Shanti also felt that it was time to examine replace- worth Toffee had been flat for the past couple of years, and ment of the manufacturing line. The manufacturing and packing lines had originally been installed together more than 20 years earlier. Although efficiency of the EXHIBIT 1 Operating Standard Costs for Edgeworth Toffee $ per case % EXHIBIT 2 Manufacturing and Packing Line Selling price $145.00 100 Performance Statistics Raw material 24.65 17 Standard Actual Packaging material 29.00 20 Measure (%) (%) Labor-manufacturing 13.05 9 5 Manufacturing efficiency 80 76 Labor-packing 7.25 15 Manufacturing scrap rate 1.2 1.5 Overhead & depreciation 21.75 Packing efficiency 80 48 Total cost 95.70 66 Packing scrap rate 1.2 9.6 Margin 49.30 34128 Purchasing and Supply Management manufacturing line was close to the target of 80 per- cent, it was also showing signs of deterioration, The ef- increasingly more difficult to find replacement parts. A new manufacturing line would Cost approximately $600,000 installed. pees Ls OUTSOURCING into outsourcing. A preliminary review indicated that there would be substantial coordination costs if only packing Was outsourced; therefore, outsourcing Manufacturing and packing was investigated. Ian and Shanti selected two con- tract manufacturers to submit proposals, Martin Contract Man in artin) and Dasari Inc. Bids were requested from both for the existing packaging and the new pack- aging proposed by marketing. In order to make sure the suppliers were well informed about the manufacturing and packing processes, both were invited to tour the Durham plant, and they were Provided with detailed information and related data regarding the operation of the lines. Following a review of the proposals submitted by the suppliers, Ian and Shanti decided that Martin had the best new packagi responsible for raw that it would need six months to ramp up production of Edge- worth Toffee. THE TEAM MEETING As Shanti looked at the information on her laptop that had been collected regarding manufacturing and packing of Edgeworth Toffee, she knew that something had to be done to address the declining margins of the brand as a re- sult of increased production costs. Investing in new equip ment seemed like an obvious solution; however, the capital investment would be Significant and her proposal would need to exceed the company's 1 0 percent cost of capital rate {0 get approval by finance. While reviewing the proposal by Martin, Shanti felt that some of the overhead costs at the Durham plant could be elim- inated if production of Edgeworth Toffee was outsourced. The estimate provided by the accounting department was that overhead costs allocated to the brand could be reduced b ' ap- proximately 30 percent if production was outsourced. Historically, the company's strategy had been to control production of its products to ensure@uality and delivery performance')Garland had an excellent reputa- tion with it Customers and the customer service level for Edgeworth Toffee Was a line fill rate of Q8 percent.) However, if the case to Outsource could be made suc- important decision and she wanted to make a clear rec- bid. Martin quoted a cost of $68.00 for manufacturing and cessfully to the team on Monday, Shanti felt that senior packing for both the current packaging and marketi is management would approve the Proposal. This was an Ka ng. The supplier would be material and packaging material costs. In addition, Garland would pay $35,000 in tooling costs up front. Martin indicated = ommendation at the meeting on Monday, Supported by a thorough analysis of both options