This case is set in $1965$ in a division of a major UK$-$based chemicals firm when the exchange rate was $$2\mathrm{.}80/,$ inflation was about $4\%$ per year, and a chemical worker was paid about $3,000$ per year. The issue is make versus buy for packaging containers. The container is technologically advanced and is an important element of the value of the end product to the customer. The Wellington Chemicals Division manufactures and sells a range of "hard to hold" chemical products throughout Great Britain. Since these products require careful packing and storing, the company has always promoted the special properties of the containers it uses. In fact, a major element of Wellington's marketing strategy is its container. The containers are large steel drums with a unique, patented, spray$-$on lining made from a specialty chemical known as GHL$.$ Each drum weighs about $260$ pounds and holds about $500$ gallons which is about $1\mathrm{.}25$ tons. The firm operates a department especially to maintain its containers in good condition and to make new ones to replace those that are past repair. Wellington is making $3,000$ new containers each year and repairing $4,000$ used containers, There are $12,000$ containers in circulation $($an average $4$ year life$)$ and containers average $3$ round trips per year. Thus, on average, each container is used $12$ times and repaired $1\mathrm{.}33$ times during its life.

Mr$.$ Walsh, the division general manager, has for some time suspected that the firm might save money, and get equally good service, by buying its containers from an outside source. After careful inquiries, he approached a firm specializing in container production, Packages, Ltd$.,$ and asked for a quotation. At the same time, he asked Mr$.$ Dyer, his chief accountant, to provide him with an up$-$ to$-$date statement of the cost of operating the container department $($see below$).$

Within a few days, the quotation from Packages, Ltd$.$ came in$.$ The firm was prepared to supply all the new containers required $(3,000$ per year$)$ for $125,000$ per year, the contract to run for a guaranteed term of five years and thereafter to be renewable from year to year. If the required number of containers increased, the contract price would be increased proportionally. Additionally, Packages Ltd$.$ would undertake to carry out purely maintenance work on containers, short of replacement, for a sum of $37,500$ per year, on the same contract terms. Walsh estimated that Packages, Ltd$.$ would make a $15\%$ profit margin $($before taxes$)$ on each of the contracts. They would only accept the maintenance work if they were also manufacturing the new containers.