A large global automobile manufacturer is considering outsourcing the manufacturing of a solenoid used in...
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A large global automobile manufacturer is considering outsourcing the manufacturing of a solenoid used in the transmission of its SUVs. The company estimates that annual fixed costs of manufacturing the part in-house, which include equipment, maintenance, and management, amounts to $6 million. The variable costs of labor and material are $5.00 per unit. The company has an offer from a major subcontractor to produce the part for $8.00 per unit. However, the subcontractor wants the company to share in the costs of the equipment. The automobile company estimates that the total cost would be $4 million, which also includes management oversight for the new supply contact.
a.How many solenoids would the automobile company need per year to make the in-house option least costly?
b.What other factors, besides costs, should the automobile company consider before revising its supply chain for SUVs?
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