A box manufacturing cost analysis at B.R.H. (Pty.Ltd.)

Abstract

The debate about choosing outsourcing over in-sourcing and vice versa has been going on for decades now, with no clear answer in sight. This decision forms part of a company’s business strategy. Many have developed their own frameworks to assist in deciding which sourcing strategy is best for their business. This is not a once- off decision, as it needs to be reviewed over time, especially as the business grows. This study investigates the feasibility of in-house manufacturing of packaging material at B.R.H. (PTY.LTD), a cleaning products manufacturing facility. The results will assist the owner to determine whether the manufacturing of his own packaging material would be cost reducing and profitable. This project is conducted in two phases; firstly to determine cost-effectiveness of the investment if B.R.H. only manufactured packaging material for their own use. Secondly, to determine if this could turn into a profitable new business venture. A cost analysis was performed using Monte Carlo simulation, to determine what the expected costs would be. This was plotted against the outsourcing costs to determine if and when the costs will break-even (meet). The initial findings showed that the cost to manufacture only what the company requires, on a monthly basis exceed the outsourcing costs. However if production is increased, the excess cardboard can be sold to reduce the manufacturing expense.