Scotts Miracle Gro

Topics: Cost accounting, Cost, Quality control Pages: 3 (474 words) Published: March 19, 2014
1. Major issues(□drawbacks √advantages) Issues with Temecula Operations
High costs ( labor cost, overhead cost, raw material cost, energy cost) but were being improved Redundant and labor-intensive process, low efficiency lay-out, but were being improved In-mold labeling -- high quality (Hot stamping -- low quality) Issues with outsourcing to China

Scotts has to either provide the know-how of “in-mold labeling” or drop this feature. Labor cost was low (√) but was expected to increase at 40% in the next decade. Electricity cost was low (√) but was expected to increase at 20% in next decade. Freight cost was USD 8 million and was increasing at 3% per year. It had to keep safety stock of 8 weeks inventory ($460,000) to balance the increased lead time. Contract manufacturer would take an 8% profit margin above costs. Scotts also has to pay transaction cost and managing cost.

There would be a time-lag for quality reassurance in US due to the batch nature of suppliers. Chinese government policy on Yuan remained uncertain.
Provisional agriculture product tariff-free policy existed (√) but later it might change. It seems that risks outweigh benefits. Analysis is provided below. This plan is NOT advisable to be taken. 2. Alternative solutions

Setting up a new plant in China ( mentioned in the article ) Initial cost would be USD 8 Million and taking one year.
Benefits would be low cost and direct control over process and quality. Staying at Temecula in US ( in line with the director’s wish ) Costs would still remain high in the short term
Relationship with local upstream suppliers and product design innovation could also lower raw material cost. Local R&D collaborators better incorporated manufacture into design, ”design for manufacture” Automation could result in decrease of both overhead cost and labor cost as well as increase of production efficiency. Increasing quality control and productivity with expertise could also lead to low cost....
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