Introduction
To begin with, it should be stated that the integrated estimation in accordance with the TLC and WLC methods are comparatively innovative, and may be used for the estimation of the costs and budget of any organization. Originally, the aim of this paper is to analyze the micro costs into the generic macro level stages of ownership of the Butler’s company. In accordance with the LLC, TLC and WLC techniques, there is strong necessity to give the analysis of the revenues and expenses of the company. In the light of this perspective, it should be stated that all the analysis tools are considered to be the matters of the financial estimation of the costs, spent for the development of the company, and satisfying its basic needs.
Analysis
The financial analysis of the Butler’s company is generally associated with the estimation of the business development. From the perspective of this consideration, it should be emphasized that the original analysis of the financial flow will be touching upon the company’s employment options, the financial reserves aimed at the development of the company, satisfying the need is salaries, risk management, advertising qualification improvement, technical support of the equipment and software etc.
To address the company’s outsourcing options, Butler need to take into consideration numerous factors. The origins of the company provide an excellent opportunity of outsourcing the part of the working assignments, thus decreasing the expenses. The spheres which may be outsourced are the IT sphere, call center and part of the manufacturing process, which will not suffer the transformation into the in-house manufacturing. Originally, these are the spheres and phases which do not require the specified equipment. Butler knows that establishing the type of long-term partnership with suppliers that the company is looking for will require a deep understanding of the in-house costs for each of the outsourcing initiatives. Butler also knows that to make a rational decision, he and his supply chain management team must thoroughly understand the financial aspects of these potential outsourcing activities.
In accordance with the incoming data, the financial flows of the company are the following:
The micro costs and the macro levels of the represented net cash flows are generally related with the matters of critical decisions and the issues of the company development. The fact is that, when the key financial flows are regarded to be the matters of the corporate development and implementation of the central innovations. There is strong necessity to emphasize that Butler knows he cannot make these critical decisions for the company alone, especially in regard to understanding the overall financial ramifications of the various possible scenarios. Butler has decided that he needs a cross-functional team with representation from the other departments in the company. Butler feels he especially needs the finance group and all those skilled in financial analysis for evaluating the make versus buy decision for the proposal to be given to the SLT. Your assignment is to assist Butler and the supply chain management team with the tasks that follow.
Estimations
Life Cycle Cost
As a comparison of different alternatives and options, the LLC analysis method provides the tools for estimating the activity of the company from the perspective of the life cycles of any corporation, or any particular department of the analyzed corporation. (Langford, 2004) Taking into consideration the fact that the effectiveness of any option has its own effect on the costs, it should be stated that the outsourcing option, which is regarded to be the central for the current analysis had its effect on the micro costs and macro perspective of the financial activity of the company. Originally, the typical areas of expenditure which are included in calculating the whole-life cost are:
- Planning
- Design
- Construction / acquisition
- Operations
- Maintenance
- Renewal / rehabilitation
- Financial (e.g. depreciation and cost of finance)
- Replacement or disposal
Originally, the incoming data is not sufficient for the evaluation of every component required for the LCC analysis. Consequently, the general analysis will be available only: the company has essential opportunities for the further development, nevertheless, the issues of outsourcing require deeper analysis and reconsideration, as in-home manufacturing is not considered to be the good idea, if only this concept does not touch upon the IT and creation spheres. (Lambert and Stock, 2005)
Whole Life Cost
This concept is comparatively new even in comparison with the LCC and TLC concepts of financial analysis. This requires the analysis of all the factors, which are required for the company was effective, and, in comparison with the LCC analysis, WLC is often applied when the company or department is close to the termination of its activity. Thus, in accordance with Jones’s research (2007, p. 410) the following statement should be emphasized:
The whole-life costs and benefits of each option are considered and usually converted using discount rates into present-value costs and benefits. This results in a benefit cost ratio for each option, usually compared to the “do-nothing” counterfactual. The highest benefit-cost ratio option is chosen as the preferred option. Historically, asset investments have been based on expedient design and lowest cost construction. If such investment has been made without proper analysis of the standard of service required and the maintenance and intervention options available, the initial saving may result in increased expenditure throughout the asset’s life.
From the perspective of this statement, it should be emphasized that the WLC analysis may be performed with the high accuracy only when the company will endure several cycles of its existence, while the newly appeared company can not be estimated with the help of this tool.
Through Life Cost
Originally, this is the financial analysis tool aimed at researching the actual expenses of the company in the context of its period of existence. As the company is regarded as a system, the life span of the system is generally regarded to be the matter of the central analysis factor. Consequently, this analysis tool also depends on the existence period of the company. (Tilanus, 2006)
Conclusion
Finally, it should be stated that the TLC, as well as WLC analysis tools are not applicable for the Butler’s company, as the amount of life cycles is unknown, the information on the departments of the company is unavailable. Consequently, only LCC cost may be applied for the analysis, thus, the components of the companies activity are considered and analyzed from the perspective of the provided data.
Reference List
Jones, J.V. (2007) “Integrated Logistics Support Handbook” Special Reprint Ed., McGraw Hill.
Lambert, D.M., J.R. Stock (2005) “Fundamentals of Logistics Management” McGraw Hill.
Langford, J.W. (2004) “Logistics: Principles and Applications”, McGraw Hill.
Tilanus, B. (2006) “Information Systems in Logistics and Transformation”. Elsevier Science Ltd.