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The Scotts Miracle-Gro, with headquarters in Marysville, Ohio, markets branded garden products. This case study seeks to analyze the plan of the company to outsource production of the Temecula plant to a contract manufacturer in China. Should the company proceed with this plan?
John Gray, Michael Leiblein, Shyam Karunakaran
Harvard Business Review (908M78-PDF-ENG)
November 12, 2008
Case questions answered:
- 1. What are the strategic risks and benefits of outsourcing production of the Temecula plant to a contract manufacturer(s) in China? Use any framework that you feel is relevant to assess this decision of Scotts Miracle-Gro at the strategic level.
- Financially compare staying in Temecula versus outsourcing to China. Include all possible relevant financial measures and explicitly state important assumptions and factors not included in the financial analysis. Provide a financial assessment of the offshoring option.
- What should Scotts Miracle-Gro do? Defend your answer.
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Case answers for Scotts Miracle-Gro: The Spreader Sourcing Decision
1. What are the strategic risks and benefits of outsourcing production of the Temecula plant to a contract manufacturer(s) in China? Use any framework that you feel is relevant to assess this decision of Scotts Miracle-Gro at the strategic level.
The alternatives that were being evaluated by Scotts Miracle-Gro were primarily focused to reduce the cost pressure that the existing Temecula Plant of Scotts was posing to the company.
The Temecula Plant had relatively higher production costs mainly due to high labor and material costs. Outsourcing production not necessarily gives you advantages or disadvantages. It all depends on the case and on the factor that you are considering to improve your business.
Referring to the Quinn & Hilmer reading, we see that many companies try to outsource their production to lower only short-term costs.
In the case of Scotts Miracle-Gro, there were multiple risks and benefits that were involved in moving the production of the Temecula plant to a contract manufacturer(s) in China.
Through the reading, Quinn & Hilmer, we see that strategic outsourcing can provide buyers with greater flexibility. It lowers cost pressure in terms of R&D programs or investments to upgrade production capabilities and other components.
For Scotts Miracle-Gro, outsourcing from China meant lower labor costs and material or utility costs. Owing to the lower wages of the Chinese labor, the costs would have been significantly low.
Also, moving production units to China also ensured greater market reach, as now, the company would be more visible and available in a broader market. However, outsourcing partially or completely, as per our readings, had main strategic concerns like:
- Loss of critical skills – The labor force that Scotts Miracle-Gro had in the Temecula plant was highly skilled. Though the labor force was cheaper in China, a lack of skillset would impact the production and quality of the product directly or indirectly.
- Loss of cross-functional skills – The labor force at the Temecula Plant was also well versed in using the inbound molding mechanism that was being used at the Temecula Plant and it happened to be one of the unique selling points of the product. So, shifting that to China meant low quality and higher training investments if at all they considered using the labor force there to be equipped and skilled in using these.
- Loss of control over a supplier – Transferring the production control to a different supplier meant no control over the production. It offered high stake risks like quality control, capacity control, etc.
The other risks that Scotts Miracle-Gro is facing with regards to migrating the production unit to China include…
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