The main objective in business operation is to make a profit. Business operators look for all possible ways to ensure that they have made a significant profit. This is because profit determines the growth of the business. Various methods are used to ensure that the business has made a profit. This includes looking for potential markets, product diversification, and business outsourcing. Each of these methods has its advantages and disadvantages to the business. Based on the benefits they bring to the business, people can opt to use or do away with them. This paper is aimed at looking at the various problems affecting Scotts Miracle-Gro and gives some of the possible solutions to the problems.
As Scotts continue with its project of products diversification, the company has come up with the production of fertilizer spreaders. Most of the components required in the manufacture of the spreaders are not locally manufactured rather they are sourced from China. This makes the company think of outsourcing the entire spreaders production to the country. To outsource this work, it will need the company to provide the manufacturing firm in China with the technical know-how concerning the use of molding machines. Another problem associated with outsourcing the production work to China is the high labor cost in the country. As the labor cost in China is increasing, it means that the operation cost will be high for the company. Currently, the time is taken when sourcing products from China is high. Materials take a lot of time to be shipped from China to America. This leads to the production rate of the spreaders being low. Outsourcing the production task to China means that Scotts will have to incur an additional cost concerning production control and relationship with their suppliers. The disparity and instability of the Chinese Yuan concerning the American dollar means that in case Yuan appreciates, the production cost for the company in China will be high. All these problems leave Buncombe in a dilemma with whether to outsource or continue off-shoring from China as they have been doing (Ivey management Services, 2008, pp. 28-32).
With Scott’s sourcing most of the components used in assembling spreaders, it is possible for the company to outsource the task to China. Most of the composite components of the spreader are acquired from China. This implies that the country can produce event the least complex components manufactured in America. However, molding of the spreader buckets which is done in Temecula is hard to be transferred to China despite the country having the capacity to do the task. This is due to the regulations that required an in-mold labeling process. It is required that the spreader customers own the mold while the company producing the spreaders owns the machines used in molding. This implies that the customers are free to get molding services from any supplier provided the supplier uses a compatible molding machine. Outsourcing spreader production to China might lead to complications if the Chinese company does not use compatible injection molding machines. This leaves the company with no option but to incur extract costs in ensuring that they have provided the Chinese company with the right injection molding machines to prevent the quality of their spreaders from being compromised (Articlesbase, 2010, para. 2). There is a chance that the Chinese company fails to use the injections machines due to their staff not knowing how to do in-mold labeling. This will lead to Scotts incurring costs in training the staff on how to do the labeling. Time spent in training staff could be used in producing and assembling more spreaders. Providing the necessary training to the staff does not guarantee Scotts that the company to be contracted will be capable of using molds being used back in America. This implies that there will be a possibility that Scotts will have to acquire new molds which are expensive and takes a short period before wearing out.
One of the highest costs incurred in company operations is labor cost. Due to changes in the cost of living, labor cost in different countries keeps on escalating. This adds to the operations costs of companies. Labor cost in china is expected to rise by approximately forty percent in the next ten years implies that outsourcing spreader production to China will lead to Scotts having to suffer increased labor costs from the one they are spending currently. Compared to American workers, the Chinese have a low productivity rate. The rate of spreader production thus is expected to go down if Scotts happen to outsource the task to China (Cain, 2010, para. 2). This coupled with the increasing labor cost in the country will lead to decrement in Scotts’ profit margin as the company will have to increase the number of workers if it has to meet its present rate of production. Despite China subsidizing its electricity charges, industries in the country heavily rely on coal for energy. As the coal price continues to escalate in the country, outsourcing will mean that Scotts have to be prepared to meet the extra cost in energy. China aims at reducing the rate of environmental pollution. To meet this, China has continuously hiked the price of coal to discourage industries from using it for energy. For effective production of spreaders, the company needs to have adequate space. Leasing such space in China proves to be very expensive. Shipping already completed spreaders from China to America will also cost Scotts a lot of money compared to what it spends in shipping various components to be assembled in America (Cain, 2010, para. 4).
For effective customers satisfaction, every business organization needs to ensure that its customers access goods and services whenever they need them. There is need for every business organization to ensure that it always have enough inventory on hand. Outsourcing the entire work of spreader production to china might lead to Scotts some times running out of stock. This is due to long time taken before goods are shipped from China to America. To avoid this, the company has to ensure that it always have enough stock that can keep it operating for about eight weeks (McCray, 2008, para. 3). This can not be done without it incurring storage costs. Outsourcing requires Scotts to cater for management and oversight costs experienced by the contracted firm. Bearing in mind that the contracted firm expects to make profit from the contracted work, Scots is expected to spend a lot in spreader production if it happens to contract it to China. Extra expenses are going to be faced as Scotts try to monitor its suppliers and production activities in China. To manage production of spreaders, Scotts holds regular discussions with its suppliers as well as inspection of products supplied. Outsourcing will mean that alterations will have to be made to cater for the changes. The company will not have enough time to inspect some of the products supplied. This might compromise the quality of spreaders produced. Cases might occur where spreaders produced in China will be shipped to America only to be found that they are faulty. Such incidences will affect Scotts’ reputation leading to reduced sales.
With all the expenses Scotts is expected to incur by outsourcing spreader production to China, the most viable solution is for the company to conduct employee training to ensure that its staffs are capable of producing the complex components of the spreaders that they acquire from China. This will help in ensuring that the quality of the spreaders is maintained and also improved as they will be capable of overseeing their production. The training cost as well as the cost of acquiring raw materials from China is lower compared to all the overhead costs associated with outsourcing. The fact that American employees are more productive compared to Chinese, Scots will be able to ensure that its production rate is not affected thus ensuring that they always have enough stock for its customers. The extra cost experienced in acquiring new molds and leasing space in China will be eliminated as the company will continue using its current molds and space to produce its spreaders. Labor cost will be low in America compared to China where labor cost keeps on increasing (McCray, 2008, para. 5).
Some of the social and ethical problems that are likely to face the company when it comes to staff training are selecting the right employees to train and setting salaries for the trained staff. This can only be addressed by granting training opportunities to those employees who are seen to be productive in the company. It will also help in employee motivation as they will learn that to be promoted, they have to work hard.
Reference
Articlesbase. (2010). Outsourcing to China – A Few Problems. Web.
Cain, G. (2010). Job outsourcing: Problem or solution. Web.
Ivey management Services. (2008). Scotts Miracle-Gro: The spreader sourcing decision.
McCray, S. (2008). The Top 10 Problems with Outsourcing Implementation (And How to Overcome Them). Web.