Scotts Miracle-Gro: Temecula Future

Summary

Scotts Miracle-Gro: Temecula Future

Benefits with outsourcing:

• Reduce costs by finance evidence
• Focus on distribution and marketing instead of production.

Risks with outsourcing:

• Loose competitive advantage to the customers eye
• The insecure fluctuations of the exhange rate between the Dollar and the Yuan.
• Less direct control of the production and quality process
• Decreased power of the supply chain

Stay in Temecula!

Relative capability

The Problem:

Conclusion

Benefit:

• Outsourcing will reduce the cost of the production process for the next 10 years.

Risks:

• BUT Scotts is an old company which cannot take decisions based only for a few years ahead.
• The uncertainty of the Dollar-Yuan exchange rate makes it very risky to outsource for a longer period of time.

Conclusion

• Relative capability says we should stay.

The reduced costs for the next 10 years are not valuable enough compared to all of the strategic risks with the outsourcing. We should stay in Temecula.

The board is considering to outsource all production and assembly at the Temecula plant to China. We have investigated the financial and strategic risks with such a decision.

Contribution to competitive advantage

Future advice for staying in Temecula

History of The Scotts Miracle-Gro Company

Continue to invest in R&D department, the marketing as well as increasing the efficiency by automatizing the production process.

benefit:

• The savings from the reduced costs provides possibilities to reduce prices of the final product and invest in the R&D department.
• Focus on distribution and marketing instead of production.

risk:

• Decreased value in the customers eyes due to the exclusion of the in-molding-labelling.
• Loose experienced staff which have contributed to several innovations like the new assemble process.

conclusion

• The benefits from the savings will only be certain for the next 10 years. BUT the experience will be lost forever.

Scotts Miracle-Gro was the world’s leading supplier and marketer of consumer products for do-it-yourself lawn and garden care, with products for professional horticulture as well.

Formed 1995 with a merge of Miracle-Gro (1951) & The Scotts Company (1868)

Largest company in the North American lawn and garden industry after the merge

1992 their stocks were trading on the NASDAQ

2000 Scotts Miracle-Gro products were No. 1 in every major category and in virtually every major market in which they competed

Procedure

Potential for opportunism

NPV Comparison

What do the financial part say?

The strategic part is investigated with basis of three main criterion which are :

• Potential for opportunism
• Contribution to the competitive advantage
• Relative capability

Cost if we stay

• There will be potential for opportunism if we outsource our production process.
• At the time for the contract renewal the supplier might want to renegotiate the contract.

Conclusion:

We will loose the power of the supply chain if we outsource.

Cost if we move outsource

Cost if we offshore the products