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GARLAND CHOCOLATE SOURCING REPORT FOR EDGEWORTH TOFFEE

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Background

Garland chocolates is a leading and well-known manufacturer of chocolates based in

Durham, North Carolina. It also manufactures confectionery products ranging from 65 different

brands. Its headquarter is in the United Kingdom. It has different plants worldwide, with eight

plants in the United States of America. In Durham, the Company has a plant that produces

twenty products that can be found in various stores, chains and boutiques in the USA. Garlands

chocolate company has an annual revenue of $3 billion. The market changes and consumers'

needs, preferences and tests; due to this, Garlands Company has to improve on their products.

The Company is undergoing some challenges and problems with its manufactured brand, the

Edgeworth toffee. The Garland Chocolate plant that manufactures Edgeworth toffee is found in

Durham, North Carolina. The brand's margins have been declining over the years. The

production of Edgeworth toffee involved manufacturing and packaging. The Company followed

two methods in manufacturing coffee; the first one was placing ten pounds of bulk toffee in

stores for the consumers to decide on the amount of toffee they needed and pack them. The

second method involved the production of a fixed size of toffee. The two formats used by the

Company were sold at $145 per case. The packing lines used for Edgeworth toffee became

outdated, thus leading to a decrease in efficiency over the years. The director of the operation of

the Garlands chocolate plant located in Durham, Shanti Suppiah, prepared a meeting that will be

held to discuss whether to purchase new equipment or outsource the manufacturing and packing

of products. The Company has to decide whether to insource or outsource, considering the risks

involved and benefits.

Introduction
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One of the most vital decisions in an organization is whether to insource or outsource

(Elhoushy, 2020). The companies that emphasize security, culture and compliance but lack the

resources to attract potential employees; insourcing Can be considered the solution to their

problems. It can be complicated to insource compared to Outsourcing because it is costly and

time-consuming to train the Company's talent. However, insourcing and Outsourcing can be

beneficial to the business depending on the business type; before Outsourcing, organizations

should consider the type of services intended to be outsourced. This will help determine whether

the departments involved will be able to handle Outsourcing. The Company needs to evaluate the

impacts of insourcing on performance and whether it has enough workforce for insourcing. If the

Company lacks an extra workforce, Outsourcing would be the best solution because it will

provide more staffing. Many companies outsource because of a lack of equipment for performing

a business process. The organization's ability to control its operations and make its own decisions

will differ in Outsourcing and insourcing (Damanpour, 2020). A company that uses Outsourcing

has minimal control over the methods used. Insourcing can be expensive because it involves

implementing different processes in the organization.

Sales of the Edgeworth toffee have been flat over the years, and the efficiency rate of the

Company's manufacturing line has deteriorated to 76%, unlike five years prior, which was 90%.

Due to this, installing a new manufacturing line would be required; it will cost an estimate of

$600,000 to be installed; the marketing department proposed using a new strategy that involves a

new image or packaging; this would require different packing technology. John Slaughter, a

representative from the marketing team, proposed that introducing a new packaging and

marketing campaign would result in a 20% increase in the Company's sales. Shanti Suppiah

obtained an estimate of $140,000 from Ian Hanse, the purchasing manager of the Durham plant.
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The estimate was the cost of replacing both packing lines of the Edgeworth toffee and its

installation. The use of new equipment would lead to BPO efficiency. Shanti and the purchasing

manager also considered the outsourcing options; they invited Martin and Dasari Inc. to submit

their proposals. Martin won the bid and indicated that it would take approximately six months to

improve the production of Edgeworth toffee. Garlands chocolate should incur $68.00 for the

manufacturing and packing of existing and new packaging. The Company would also incur

$35,000 for tooling costs. Shanti felt that Outsourcing could reduce and eliminate overhead costs

at the plant even though the Company had always opted to control its production to ensure

quality in production and delivery of the products.

Identification of problem

The study aims to analyze sourcing strategies to be used in the production of Edgeworth

toffee produced by Garland's chocolates. The product is not manufactured and packaged

efficiently and effectively. It has 46% packing efficiency, while the goal is 80%. The scrap rate

is 9.6%, while the Company desires a 12.6 scrap rate. The Edgeworth toffee has two packing

formats, which involve producing the fixed-sized amount of toffee that is half-pound and ready

for retail. The second format is 10 pounds bulk packages that are delivered to stores. The

Company produces 3000 bulk toffee cases and 2500 cases of fixed-sized toffee yearly.

The Edgeworth toffee has two packing lines for each format used. The packing lines are

outdated, thus leading to a decrease in efficiency and sales of the brand. The packing line has

48%efficiency and costs $18,000 to be maintained. For the Company to attract more customers

and arouse interest in their consumers, the marketing department proposed embracing a new

market strategy and changing the image of the packaging. However, new packaging would

involve the use of a new packing technology. According to John, a representative of the
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marketing department, introducing new packaging and market campaigns would lead to a

20%increase in the Company's sales. The Company faces a dilemma on whether to outsource or

insource manufacturing the Edgeworth toffee. When the Company chooses to outsource, it will

incur $68.00 for manufacturing the existing packaging and marketing the new packaging. It

would also incur additional tooling costs of $35,000. The Company is also considering replacing

the manufacturing line installed two decades ago. Installing a new manufacturing line would cost

approximately $600,000.

Analysis of the two alternatives

Outsourcing

This alternative involves outsourcing the packing and manufacturing of Edgeworth

toffee. Martin Contract manufacturing and Dasari Inc were invited to submit their proposals, but

Martin won the bid. Martin presented a quotation of $68 for the manufacturing and packaging of

both the current and new packaging. Garland Chocolates would also pay $35 00 for tools.

According to Martin, it would take up to six months to ramp up production of Edge worth toffee.

Potential benefits

 There would be an increase in efficiency; this is because the Company will make

use of better manufacturing and packing technology. The new equipment would be more

efficient and effective than the existing ones.

 The supplier would bring in their experience and expertise, thus better

performing the production process. This, in turn, leads to an increase in the Company's

productivity and efficiency.

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 If Garlands company decides to outsource, there would be a 30% reduction of

overhead costs allocated to Edgeworth toffee.

 Access to advanced equipment, the new provider has better and more efficient

equipment that can be used in the manufacturing and packing the product.

 An increase in flexibility to meet the changing market because the Company will

use a new packing technology and manufacturing line that is not outdated

 Reduction in the cost of production earlier when the Company produced one case

of Edgeworth toffee would cost $95.70, but with Outsourcing, it would cost $68.

 Garland Chocolates Company will be able to save its money and time because the

new provider has the needed experience in manufacturing and packing the Edgeworth

toffee.

Possible risks

 Security and confidentiality risks, the Garland Chocolates company will have to

share some of its vital and private information with the supplier and may end up facing

security risks.

 The Company may lose some control of how some tasks and processes are to be

performed in the production of Edgeworth toffee.

 Reduction in quality control because most outsourcing companies are motivated

by profits rather than producing quality products

Mitigation Strategies

 To avoid losing control, the Company should determine the responsibilities they

are willing to hand over to the new provider before hiring them.
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 The Company should prepare a contract to protect the organization from dealing

with security.

 To prevent the breach, the Company should request the new developer to sign a

Non -disclosure agreement.

 Documenting the Company's and the supplier's expectations on the outsourcing

relationship.

 The Company should also request references from the companies that the supplier

has worked with

Total costs

The cost of production of Edgeworth toffee per case=$68

Cost of production yearly=$306,000($4500×$68)

Total cost of production yearly (+) tooling costs = $341,000 ($306,000+$35,000)

Martin Contract manufacturing quoted $68 per case for manufacturing and packing

current and new packages. Resulting in an annual cost of approximately$306,000 together with

$35,000 for tools. The total cost of outsourcing the manufacturing and packing of Edgeworth

toffee is $ 341,000

Insourcing

This alternative involves the Company conducting its production processes onsite

(Anderson, 2022). The Company would be able to control the production of Edgeworth toffee.

However, the packing line is outdated because they were installed twenty years ago, leading to a
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decline in inefficiency. The cost of replacing the two packing lines is $140,000. The

manufacturing line should also be replaced because of its declining efficiency.

Potential benefits

 Higher quality control because the Company controls the raw material and all the

processes involved in the production of Edgeworth toffee.

 Complete control over the manufacturing and packing of the product because the

production will be performed in-house.

 Fewer risks are involved compared to Outsourcing, where information is shared

with a third party.

 Increase in efficiency because the use of new packing and manufacturing lines

will lead to a reduction in maintenance costs incurred by the Company

 It allows the Company to capitalize on the existing strategy

Potential risks

 The cost of replacing the packing lines is $140,000, which is very high

 The cost of replacing the manufacturing line is $600,000, which is very high

 The Company will incur extra costs in the production of Edgeworth toffee

 The Company will invest a lot of money and get fewer returns.

Mitigation Strategies

 The Garland chocolate company should consider other cost reduction strategies

before settling on insourcing because it does not have quick returns. It is expensive

because it involves implementing new processes(Akbari, 2018). The Company can

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reduce the costs of replacing and installing new manufacturing and packing by replacing

one before the other. This will contribute to inefficiency rather than reduce it.

Total costs

The maintenance cost of the two packing lines=$36,000 (18,000×2)

The cost of replacing and installing the packing lines = is $140,000

The cost of replacing and installing the manufacturing line = is $600,000

The total cost of replacement and installation =$740,000($600,000+$140,000)

The total cost of producing Edgeworth toffee per case = 95.70

Total cases of Edgeworth toffee produced in a year =5500(2500+3000)

The total cost of producing the Edgeworth toffee=$56, 3350(5500 ×97.50)

The total cost of production and replacement= $1,266,350($740,000+$56,350)

The Company produces 5500 cases of Edgeworth toffee in a year, both the bulk and fixed

size. The total cost of producing coffee in a year is $95.70.The total cost of production is

$56,350.The total cost of replacing and installing the manufacturing and packing line

is$740,000.Therefore the total cost of insourcing is $1,266,350.

Recommendations

The Company should consider the Outsourcing alternative. After analyzing the two

alternatives, it is evident that insourcing is expensive compared to Outsourcing. When the

Company chooses to insource, it will incur a total cost of $1,266,350.On the other hand, if the

Outsourcing option is considered, the organization would incur $341,000. The outsourcing
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alternative faces security risks, loss of control in the production process, and reduced quality

control. However, the risks can be avoided by signing a Non-disclosure agreement and contracts

to avoid a breach.

Conclusion.

The Garland chocolate company was faced with a dilemma of whether to insource or

outsource the production of the Edgeworth toffee. The report analyzes the two alternatives; their

potential benefits, risks and mitigation strategies. The analysis shows that Outsourcing is a

profitable option because the cost of Outsourcing is cheaper than insourcing. Unlike the

insourcing option, Outsourcing has more benefits, and its risks can be mitigated for its

effectiveness. Outsourcing can increase efficiency in the production of the Edgeworth toffee,

thus helping the Company achieve its goals and objectives.

References

Anderson, S. J., & McKenzie, D. (2022). Improving Business Practices and the

Boundary of the Entrepreneur: A Randomized Experiment Comparing Training,

Consulting, Insourcing, and Outsourcing. Journal of Political Economy, 130(1), 157-209.

Akbari, M. (2018). Logistics outsourcing: a structured literature

review. Benchmarking: An International Journal.

Damanpour, F., Magelssen, C., & Walker, R. M. (2020). Outsourcing and

insourcing of organizational activities: the role of outsourcing process

mechanisms. Public Management Review, 22(6), 767-790.

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Elhoushy, S., Salem, I. E., & Agag, G. (2020). The impact of perceived benefits

and risks on current and desired levels of Outsourcing: Hotel managers' perspective.

International Journal of Hospitality Management, 91, 102419.