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QUESTION #6-Make Vs Buy Gianna, Pope's Chief Marketing Officer, and Marco, the Chief Operating Officer, are arguing over the fate of the Bean Boiler. The Sean Boiler is Primo Caf's most basic model. It is competitively priced at $20 per unit and the company reliably sells 25,000 units per month Fixed annual costs and variable costs for the Bean Boiler are presented below. Gianna sees the Bean Soiler as a loser. There are lots of competitors that are rapidly eating into Puipe's market share- and although sales have been stable, the company's best projections are that Bean Boiler sales volume will dedine by 15% year-on-year over the next five years. Gianna wants to pull company manufacturing resources from the Bean Boiler now and invest immediately in a new product-a French press she's designed called the Brassage Frais. The management team at Primo believe that the Brassage Frais will drive the company's growth strategy in the next 5 years. Marco is not convinced. From manufacturing perspective producing P5,000 Bean Boilers a month is easy. Plus the Bean Soiler pulls in about $6,000,000 in revenue per year. Marco doesn't see why the company should give up the profit for an unproven product Gke the Brassage Frais. And while Marco concedes there's nothing special about Evoras production process - other companies make essentially the same product in the same way - Marco is convinced it is cheaper to produce in-house than outsource. In fact, when Marco asked you to find a potential outsourced supplier for production of the Bean Boiler, the best price you could find was $14.00 per unit (previous negotiations with legit Mfg from 03 fell through and the company has since gone out of business). The supplier which quoted $14.00/unit is a company that, from your initial discussions, seems to have the quality culture and experience that is needed to manufacture the Bean Boiler. In-House (Cost to Make Direct Materials Direct Labor Variable Me Overhead Total Variable Costs Per Unit Fixed Annual Mfg Overhead Outsource (Cost to Buy) Price Per Unit $5.00 $8.00 $2.00 SH0.00 $900,000 $14.00 Apply the make-buy pillars as presented in class to complete the question below. Complete all calculations in the excel file that you will upload with your exam. 1. Marco wants a recommendation on what Primo Cate should do. Given the information above- and what you know about the product you are sourcing - what would you recommend? What should be your (and Marco's) next steps? 11 Display Settings Focus MC SUNG You work as a supply chain manager for Primo Cof Inc. Primo Caf is a small-sized manufacturer of stylish coffee makers. The company has three distinct coffee makers that it produces The Bean Bodler is Primo Caf's most basic model. The main materials used in manufacturing the Bean Boiler are aluminum and plastic. There are lots of suppliers for these materials. At present, Primo Caf's total cost for producing a Bean Boiler is $13 per unit and the product is competitively priced at $20 per unit There are lots of other coffee makers that are very similar to the Bean Boiler on the market. Still, sales of the Bean Boiler are very stable. The company reliably sells 24,625 to 25,375 units of this product per month. The Family Man is Primo Caf's mid-market offering. Primo Caf manufactures most of the Family Man in-house, but buys the glass pot and the electronics that control the on/off function and the timer. At present, final assembly of the in- house manufactured parts and the purchased sub-components occurs at Primo Caf's facility in Grand Rapids. Total cost for producing the Family Man is currently $32 per unit and each unit is sold for $34.99. The Family Man's sleek, artistic design and range of unique colors helps to distinguish it from a wide selection of similar products offered by competitors. Prices for direct competitors range from $25 to $45. Sales of the Family Man range from 19,400 to 20,600 units per month. The Saffissime is Primo Caf's high-end offering. Primo Caf produces the external casing for the Caffissimo in-house hut buys all of the important sub- components from external suppliers. The most important sub-components for the Caffissime are the gauges that regulate the temperature and pressure of the water as it is forced through the coffee grounds. The proper working of these gauges ensure that the Caffissione produces a perfect cup of coffee at brewing. The Caffissine's design is a closely held company secret. The machine has won industry awards both in terms of its coffee making process and its external looks. Currently, the Saftissime costs $375 to produce and sells for $600. Because of the relatively high price and unique design, demand for the Caffissime is difficult to predict. Over the past year, demand has ranged from 8,500 to 11,500 units per month. 2 F G H Year 2 Year 3 Year 4 Year 5 OOO AWN B C D 25,000/month 2 Year 0 Year 1 3 Forecast (units) 4. 5 In-House (Cost to Make) 6 Direct Materials Direct Labor 8 Variable Ohvd 9 Total Variable Cost 10 Fixed Mfg Ovhd 11 Total Cost to Make 12 13 Outsource (Cost to Buy) 14 Price per unit 15 Total Cost To Buy 16 17 At what quantity, Q, does the cost to make equal the cost to buy? 18 Q = 19 20 21 22 23 24 25