Operations Management/Math Problem

B&L Inc. Case Study

Brian Wilson, materials manager at B&L Inc. in Lancaster, Pennsylvania, was considering a proposal

from his purchasing agent to outsource manufacturing for an outrigger bracket. It was the end of April

and Mr. Wilson had to evaluate the proposal and make a decision regarding whether to proceed.

B&L Inc. Background

B&L Inc. manufactured trailers for highway transport trucks. The company comprised three divisions: the

Trailer, Sandblast & Paint, and Metal Fabricating Divisions. Each division operated as a separate profit

center, but manufacturing operations between each were highly integrated. The Metal Fabricating

Division produced most of the component parts of the trailers, the Trailer Division performed the

assembly operations, and the Sandblast & Paint Division was responsible for completing the sandblasting

and final painting operation. B&L manufactured approximately 40 trailers per year, with about two-thirds

produced during the period from November to April.

The Outrigger Bracket

The outrigger bracket, part number T-178, was an accessory that could be used to secure oversized

containers. The bracket consisted of four component parts welded together, and each trailer sold by B&L

had 20 brackets—10 per side.

The Metal Fabricating Division was currently manufacturing the outrigger bracket. The subassembly

parts—T-67, T-75, T-69, and T-77—were processed on a burn table, which cut the raw material to size.

Although the burn table could work with eight stations, this machine had only been operating with one

station. The final assembly operation, T-70, was performed at a manual welding station.

Manufacturing lead time for the outrigger bracket was two weeks. However, the Metal Fabricating

Division had been able to coordinate supply and production with assembly operations. Consequently,

finished inventory levels of the outrigger bracket were kept to a minimum. B&L's inventory holding costs

were 20 percent per annum.

The Outsourcing Decision

In an effort to reduce costs, the purchasing agent, Alison Beals, who reported to Brian Wilson, solicited

quotes from three local companies to supply the outrigger bracket. Mayes Steel Fabricators (Mayes), a

current supplier to B&L for other components, offered the lowest bid, with a cost of $108.20, FOB B&L.

Brian met with the controller, Mike Carr, who provided a breakdown of the manufacturing costs for the

outrigger bracket. Looking at the spreadsheet, Mike commented: “These are based on estimates of our

costs from this year's budget. Looking at the material, labor, and overhead costs, I would estimate that the

fixed costs for this part are in the area of about 20 percent. Keep in mind that it costs us about $75 to

place an order with our vendors.” Exhibit 1 provides B&L's internal cost breakdown and details from the

quote from Mayes.

Brian expected that B&L would have to arrange for extra storage space if he decided to outsource the

outrigger bracket to Mayes, who had quoted delivery lead time of four weeks. Because Mayes was local

and had a good track record, Brian didn't expect the need to carry much safety stock, but the order

quantity issue still needed to be resolved.

B&L was operating in a competitive environment and Brian had been asked by the division general

manager to look for opportunities to reduce costs. As he sat down to review the information, Brian knew

that he should make a decision quickly if it was possible to cut costs by outsourcing the outrigger bracket.

Analyze the information and write a report to Brian summarizing your recommendations. Be sure

to include your calculations for supporting your recommendations. To guide your report and

expectations see the Case Study rubric in the syllabus or in the course information area. Submit

your report in your week 4 drop-box labeled Midterm Exam B&L Inc. Case Study.

Source: Johnson, P. Fraser, Michiel R. Leenders, and Anna E. Flynn. Purchasing and Supply

Management, 14th ed. New York: McGrawHill/Irwin, 2011, pp. 131–7.