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Team Economic Analysis_ Make In-house vs Outsource

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					   Team Economic Analysis:
Make In-house vs Outsource
             (5-Year Plan)


                Organization, tech, summarizing:


               Chris Koszo
                Holly Miller
           Liliana Raigosa
Problem          Own an engineering firm…

Print engineering drawings
in-house?



Outsource print jobs?
In-house                 HP 4000-Series Plotter

                         Considerations
                         •Have to purchase
                         •Ink Costs
                         •Operator costs
                         •Salvage value
                         •Space

                                 Drawbacks
Benefits                         •High initial cost
•Fast turnaround time            •Operating costs
•Great quality control           •Maintenance
                                 •Floor space needed
Outsource                To Mission Reprographics

                         Considerations
                         •No initial cost (pay-as-you-go)
                         •Have to proof
                         •Need delivery
                         •Our firm not self-reliant


Benefits                          Drawbacks
•No initial cost                  •Slower turnaround
•No printing hassles              •Reliance on delivery
•No floor space needed            •Questionable quality
Basic costs we are comparing

         In-house               Outsource

    Purchase price        Base printing prices
    Supplies cost         Additional costs
    Maintenance cost      Tax
    Operating cost        Shipping
    Operator cost         Inflation
    Salvage value
    Inflation
Basic Assumptions
   5-Year timeframe for analysis

   6,000 (24x36) pages printed annually

   In-house and outsource = same product

   Steady 3.00% inflation rate
In-house Costs
                                               Per-Year
•Buy plotter @ $12,000 (pay off in 5
years @ 12% interest)--------------------------- =($3,329)
•Maintenance (cleaning & parts/Labor)--- ≈($450)
•Supplies (Ink, Heads, Paper)---------------- ≈($5,400)
•Operation (Manpower, Utilities)------------ ≈($620)
•5-Year Salvage Value--------------------------- ≈ $3,000



                  Total 5-year Cost =($45,954)
Outsource Costs                                          Per-Year

•Base Bond prints (6,000 prints @ $1.20)-- ≈($7,600)
•Plot files---------------------------------------------- ≈($360)
•Staples------------------------------------------------ ≈($420)
•Sales Tax--------------------------------------------- ≈($587)
•Shipping---------------------------------------------   ≈$880



                    Total 5-year Cost =($49,700)
    What’s the best deal?
   Clearly, in-house costs less per project
    length (5 years) $45,954 vs $49,700

   Without sensitivity analysis, in-house is the
    better choice
Sensitivity Analysis
                                                              Winner
•Varying interest rate (3.00% default)
Down to 2.50% OR up to 3.50%---------------------- In-house
•Supply cost goes up ($5,048 default)
Up to $6,000-----------------------------------------------   Outsource
•Maintenance cost goes up ($450 default)
Up to $600-------------------------------------------------- In-house
•Base printing and additional costs fall
Down $.20 per-page and $.15 per staple----------- Outsource
•Plotter credit int. rate goes up (12% Default)
Up to 19%--------------------------------------------------- Outsource
    Conclusion
   After doing sensitivity analysis, in-house is
    still a better choice.

   Outsourcing would most likely only become
    a better choice if print shops started
    charging around 15% less (perhaps due to
    recession becoming really bad)
Resources
 Holly’s records, invoices etc.
 Mission Reprographics
 Plotter retailers (Internet, local shops)
 Job statistics & postings for “print
  machine operators”

				
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