STRYKER CORPORATION: IN-SOURCING Pcbs Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

STRYKER CORPORATION: IN-SOURCING Pcbs Case Solution

It can be seen that with the help of in-sourcing, the company can easily lower its cost and achieve greater benefits which the contract manufacturers could provide. From the detailed economic study of the current as well as the future conditions of the country, it can be seen that the time on which the underlying company is focusing on in-sourcing is the ideal time, as later the cost of purchasing PCBs from outside source would significantly increase as compared to the cost of manufacturing it in-house. In case if the situation prevailed in the future, then the company could significantly succeed in reducing its cost thereby increase its overall profit.
It can be seen from the analysis of the case that with the increasing time, the demand for PCBs is also increasing. In the current scenario, if with the help of outsourcing the company would be able to meet the required demands of the customer, then the increasing demand in the future would not be met by the company with its reliance on the contract suppliers. However, the in-sourcing could resolve this very issue.
The last benefit associated with this alternative is that the company would be able to secure its internal data without any kind of leakage. It can be seen that while outsourcing, the significant customer data with the company is allowed for access in the outside market which could create some potential risk of losses because the data could be used by the competitors. The building of internal control system could vitally reduce this risk to a greater extent.

Demerits

In order to successfully meet this new alternative, the biggest hurdle facing the company is the lack of skilled labor and efficient management which would make in-sourcing failure. Moreover, it can be seen that there is no reliable analysis to tell about how to employ and train a number of local staffs to use this facility cost-efficiently. Companies which are in a high-speed expansion stage often lag in human resource. In order to obtain an efficient in-sourcing, Stryker Corporation needs not only a large number of skilled labors, but also professionals who are able to manage the factory. It always takes more time and money to train the workers and searching for the professionals.
Another demerit of this alternative is the uncertainty regarding the cost saving structure of the company. It cannot be reliably estimated that the company’s overall production cost would decrease with this alternative. Canceling purchasing from contract manufacturers and going forin-sourcing instead may lead to the company incurring huge cost, be it temporary or long-lasting. As a result, the management would be in a lot of price and so the price of the products would be less competitive.

The third and the last alternative with the company seems reliably feasible because of the above defined merits associated with this alternative. However, the reliance with only these qualitative matters could not be sufficient enough to proceed with this alternative, as the company would be required to have the detailed quantitative analysis before which any recommendation could be made.

Quantitative Analysis of the Situation

The quantitative analysis of the company could be done using the data provided in the case. The technique used in this report is the discounting cash flow method which is widely used as per the number of researches in order to consider the feasibility of the project and to make certain recommendation. The discount rate used in this analysis is 15% which is provided in the case. Moreover, the tax rate of 36% is also given in the case for computational purpose.

Net Present Value

In order to identify the feasibility of the project that either it is feasible or not for the company, there are certain tools which could help the management of the company but among all, NPV is the most reliable and accurate method which could provide better estimates about the projected return from the proposed project in future. Hence, in order to identify the feasibility of the project, the NPV method is used which shows that the project is generating positive NPV and it would increase the image of the company by providing greater returns. Therefore, accepting the project could provide greater financial benefits and stability to the company as positive NPV projects are always helpful for the company in terms of financial and corporate objectives. This is the most widely used tool by much organization in order to identify the feasibility. The project is generating NPV of $499,388.53, which shows that the management of the company is investing in the right project in order to achieve future objectives.

Internal Rate of Return

The second tool used to analyze the viability of the project is the internal rate of return. From the quantitative analysis, it can be seen that the company with the help of this project, the company is earning return higher than the discount rate of 15% which leads to the fact that the project is worth undertaking and by making a GO decision, the value of the shareholders would strengthen in terms of increasing their share price due to the reduction in cost and simultaneously, increasing the profits of the company. The internal rate of return acquired by the company is 20% from this project.

Payback Period

It is basically the time required by the project to earn the amount initially invested in the form of cash outflow. With the help of this method, the company can easily ascertain the amount of risk associated with the returns that could be expected from the project. From the quantitative analysis, it can be seen that the project would payback its initial outflow of cash in 4.50 years’ time period.

Conclusion

Thus, from the detailed analysis it can be seen that if the company chooses alternative 1 by maintaining its existing sourcing strategy with the slight modification of arranging sufficient quantity of PCBs stock in its hands, then the overall cost of inventory could significantly increases its profitability.On the other hand, it could help in the solution of timely delivery of goods to the customer however due to the issue of quality of the product, this alternative would not be feasible. Moreover, in case if the company chooses alternative 2, and that it creates partnership with the single contract supplier, then although the company would be able to manage the delivery of the goods however there would be high risk that the only supplier might default which could create issues for the company. Nonetheless, the quality of the products could still be ensured without any typicality because that would be in control of the company. The last option of starting an in-house production as studied from the qualitative factors as well as the quantitative factors is yielding the positive results for the company even by considering the future economic conditions of the country. However, it can be seen that this is not the core business of the company and the results could be somewhat risky as well. Therefore, the company in order to pursue this strategy is required to effectively deal with the overall situation that could not harm in the future.................

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STRYKER CORPORATION: IN-SOURCING Pcbs Harvard Case Solution & Analysis