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Model business exam answer - page 1
Keywords: business exam question case study answer a level Asses the case for FES outsourcing the manufacture of components for wind chargers
By fk on 15/11/2006 23:14:23
Level: A Level (Year 13)
Page Number: 1 of 2 pages: 1 2Asses the case for FES outsourcing the manufacture of components for wind chargers (18)
L1 – Outsourcing is the process of moving a function such as manufacturing out of the firm to an outside contractor, removing procedure from UK operations. There are two types of activities known as core activities and non-critical activities. The core activities are key to a firm’s competitive advantage and therefore must remain internal to the firm. Outsourcing comes into play with the non-critical activities which are not the source of competitive advantage should be made external provided there is a cost advantage and allows the company to focus on their core activities.
L2 – In the case study we are informed that Steve feels that John’s inventing abilities and R and D skills are FES’s competitive advantage and that therefore manufacturing is a non-critical activity making it a candidate for outsourcing. The problem for FES if they did decide to outsource is firstly to find an outside contractor and Steve believes he has one in the Philippines or another Asian tiger economy for £40 making it cost effective for FES at half the production cost.
L3 – There are several arguments for and against the outsourcing of components that FES faces.
One argument against the case for FES outsourcing is John, this poses a very large problem for FES as he is the owner and director of the company, and by far the biggest shareholder meaning all the decision making is down to him. John sees himself as an enlightened employer who is ethical and socially responsible. These social responsibilities mean that John is unlikely to want to make his manufacturing staff redundant in replace of saving costs for FES. Ultimately this means that John is very unlikely to agree to the concept of Outsourcing, however there is a solution to his issues which would be to retrain his manufacturing staff to operate in other aspects of the business to avoid redundancies making him both socially responsible and placing his company in a better cost efficient position.
Outsourcing would be a very favourable move for FES because it would significantly reduce their costs of manufacturing by 50% increasing their overall sales revenue and profit margin. This also produces another advantage to FES because of the recent problem with productivity. The staff levels have risen higher in ration to productivity
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