Executive summary:

The primary objective of this case is to help the management in making the right decision whether to go for outsourcing or to stick with the same pattern. Apart from that another thing which should be kept in considering the cost associated with the procurement and storage of office and maintenance, repair and operations (MRO), also the outsourcing which involves purchase of a service and material (Hounsell, 2005).

When the cost reduction program came under way the first thing which came under scrutiny was the central stores at Futronics. These central stores came to existence in the middle of the 1950’s when there was a perception floating in the market that saving could be generated from bulk buying. At that point of time this step proved very successful as there was a reduction in the individual office inventories and also the decreased purchase order expenses (Anderson, 2009).

Cost cutting analysis:

From the given information in the case it could be derived that a 6 percent saving on the purchase price can be achieved on the 90 percent of the items purchased. If we inspect these figures it would mean that a minimum of $7500 could be saved per year ($140,000 x 0.90 x 0.06 = $7560) if Futronics decides to seek the services of outside stores.

  1. Secondly if the stores operation is closed the cost of the personnel and space can be reduced by approximately $200,000 per year. Apart from that the freed up space can be used for other purposes and the four people which were working there can be adjusted to any other part of the organization.
Saving % Items % $ Saved Total Inventory Working
6 90 7500 140,000 $140,000 x 0.90 x 0.06 = $7560
  1. Furthermore the discontinuance of the stores operation will eliminate the time which is required for the supervision of these operations.
  2. Another potential advantage of outsourcing would be that previously the time which was required for specific letterhead stationary was around three to four weeks. If Futronics go for outsourcing then the interested firms promises that they their order completion time would not exceed from ten working days. A large number of days can be saved in this regard and in that time other important tasks that are lined up can be done.
  3. Similarly as mentioned in the case the acquisition of new items was a lengthy job that required long time. The example of Post-Its is given which was in the store after five months of its launch.
  4. Then another important issue is that currently Futronics have forty-two area sites as compared to their previous twenty-one area sites. This in other words means that as the business would continue to grow the more space would be required. The cost of delivery of the materials to the sites would also become costly and it would be more difficult to manage. And if the supply houses would not be up to the industry standard it would hurt the company’s reputation and its image in the market.

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