BU395 Lecture Notes - Lecture 14: Customer Service, Disintermediation, Inventory Turnover
Document Summary
Outsourcing: buying g/s instead of producing or providing them in-house, benefits, lower cost (due to economies of scale, gain expertise & knowledge, or patent, gain flexibility (for temp d, ^ capacity, risks, reduction in control & expertise. Example: wlu can make pizza for sh. 4/slice, costing /day in labour & kitchen. They can instead outsource full pizzas (8 slices ea. ) for , reducing labour cost by /day. If d = 200 slices, (a) should wlu make it in-house? (b) for what levels of d would outsourcing be the better option (i. e. less costly)? (a) tl cost = 350 + 0. 4 * 200 = . Tl outsourcing cost = 80 + (10/8) * 200 = . Thus, it is cheaper to outsource. (b) tl cost of outsourcing = tl cost of making in-house => 80+1. 25d = 350+0. 4d => Thus, for any d level = 317/day, the outsourcing will be less costly.
