Outsourcing Analysis for B&L Inc. Trailer Components
This case study examines B&L Inc., a Pennsylvania-based trailer manufacturer, and evaluates the financial and operational implications of outsourcing outrigger bracket production to an external supplier. The analysis compares manufacturing costs, inventory holding expenses, and lead time impacts between in-house production and outsourcing to Mayes Steel Fabricators. Despite a four-week lead time that increases inventory costs by 10 percentage points, outsourcing offers 28% cost savings on unit production. The paper evaluates three alternatives and recommends selective outsourcing to Mayes based on supplier reputation, reliability, and the establishment of existing business relationships.
- Organization Background: B&L Inc. trailer manufacturer overview and divisions
- Problem Definition and Cost Analysis: Outsourcing proposal with cost comparison and inventory impact
- Decision Criteria and Alternatives: Evaluation framework and three viable outsourcing scenarios
- Recommendation and Implementation Considerations: Final recommendation and supplier relationship factors
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What makes this paper effective
- Clear quantitative comparison: The analysis provides specific cost figures ($150.10 vs. $108.20 per unit) and savings projections (28% reduction), making the business case concrete and measurable.
- Multi-factor evaluation framework: Rather than focusing solely on unit price, the author considers lead time, inventory holding costs, and supplier reliability—demonstrating sophisticated cost accounting.
- Systematic alternatives exploration: Three distinct options are presented with explicit reasoning for why each is or isn't viable, showing structured decision-making.
- Practical business judgment: The final recommendation balances financial optimization with operational risk by emphasizing supplier relationship and reputation—a real-world consideration often absent from purely numerical analyses.
Key academic technique demonstrated
This paper models a professional make-or-buy decision using comparative cost analysis combined with qualitative factors. The author demonstrates the ability to recognize that total cost of ownership extends beyond unit price to include inventory holding costs, lead time impacts, and supplier relationship risks. This reflects applied business analysis methodology common in operations management and procurement courses.
Structure breakdown
The paper follows a classic business case structure: background establishes the company context, problem definition presents the specific sourcing challenge with quantified costs, decision criteria articulates evaluation factors, alternatives explores viable options, and recommendation provides a justified conclusion. Each section builds logically on prior analysis rather than restating information, creating a coherent narrative arc from problem to solution.
Organization Background
B&L Inc. is a trailer manufacturer based in Lancaster, Pennsylvania that produces approximately 40 trailers annually. The company operates three divisions: trailer manufacturing, sandblasting and paint operations, and metal fabrication. The metal fabricating division manufactures most of the component parts used in trailer production.
Problem Definition and Cost Analysis
B&L Inc. was evaluating whether to outsource production of the outrigger bracket (part number T-178), an accessory used to secure oversized containers. The purchasing agent proposed this outsourcing opportunity to the materials manager, who then evaluated quotes from three suppliers. Mayes Steel Fabricators, an existing B&L supplier, submitted the lowest bid at $108.20 per bracket. While competitive on price, Mayes quoted a four-week delivery lead time, compared to the company's current two-week internal production cycle.
Cost Comparison
B&L Inc. manufactures approximately 800 outrigger brackets annually (20 components per trailer × 40 trailers). The cost structure reveals substantial differences between in-house and outsourced production:
On the surface, outsourcing to Mayes would generate a 28% cost savings of $33,520 annually. However, this calculation does not account for operational complexities.
Inventory and Lead Time Impact
B&L Inc. currently maintains an inventory holding cost rate of 20% annually, achieved through careful coordination between supply planning and assembly operations. The two-week additional lead time required by Mayes would disrupt this coordination. Increased safety stock would be necessary to protect against stockouts, raising the inventory holding cost rate from 20% to 30%—a 50% increase in carrying costs. When the ordering cost of $75 per order is factored into this analysis, the net savings diminishes to approximately 18% of the original $33,520 projection. This inventory management constraint significantly affects the financial viability of the outsourcing decision.
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