The case of Patterson Manufacturing presents an example of the company’s decision to resort to offshore production to maximize the financial profit of the business. However, the case also indirectly follows the common ethical issues that companies cause by prioritizing finances instead of acting in compliance with the company’s initial mission and position of being a responsible employer. Lastly, the current leadership is not related to the initial founder and therefore is not required to respect family values, but the dismissal of many employees will likely affect the positive reputation of the company.
Firstly, considering the controllers’ projections for Patterson’s profitability, outsourcing the manufacturing of the company’s largest-selling product, Gudgeon EH40, is expected to increase the company’s profits significantly. According to the controller’s predictions, a 5% reduction in unit prices with a 15% sales increase of products which currently accounts for 30% of total revenues, will result in approximately $2.4 million of additional income. Considering the fact that the company’s current operating income is $3.1 million, switching to outsourced production can almost double the firm’s profit.
However, the prediction lacks a substantial foundation in the form of an analysis of the company’s target audience. Significant changes in the quality of the company’s highest-selling product can negatively affect the product’s demand and cause substantial damage to the firm’s profits. The company’s historical background suggests that many products were designed and manufactured in accordance with customers’ individual projects. Therefore, it is unknown whether the company’s target audience will approve and accept the inability to make changes to the product.
Moreover, there is a group of other risks associated with the proposal and the unreliability of offshore production. According to Lair (2019), outsourcing production presents risks for the company’s autonomy and dependence on suppliers, loss of the company’s production resources, and loss of control over its core activities. Thus, by outsourcing the production of its highest-selling product, Patterson manufacturing will be exposed to several risks that can potentially have adverse effects on its financial stability.
Furthermore, the financial data suggests that the company’s outstanding performance in the previous years was achieved through significant efforts in reducing production costs. As an alternative to outsourcing the product, the production managers can take additional measures to improve the production process and reduce the manufacturing costs of Gudgeon EH40. In addition, the controller’s proposal suggests that the product currently experiences a decline in sales because competitors offer similar products for lower prices. Therefore, reducing the product’s manufacturing cost and lowering the price can be a good alternative to increase sales volume without drastic changes to the company’s jobs and working staff. Even though the firm does not have an obligation to maintain the employment levels in the town, its historical background is deeply connected to the local community. Thus, a significant change in the company’s image can negatively influence sales in the local audience.
The recommendations for the vice president of Patterson manufacturing focus on the rejection of the outsourcing proposal of Gudgeon EH40. However, the recommendations encourage transferring the production of less popular products to offshore manufacturers. Furthermore, by introducing lower prices for products manufactured by offshore suppliers, the company can gain a competitive advantage and increase consumer demand for all products. Lastly, considering the Patterson manufacturing obligations as an employer, in case the company decides to transfer a part of the production to offshore suppliers, the company can open several new positions in the sales department. Hiring more sales representatives will increase the company’s sales and help the employer cover the portion of jobs lost in production.
Reference
Lair, C. D. (2019). Outsourcing and the risks of dependent autonomy. SAGE Open, 1-12.