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Bain Medium Sourcing Outsourcing Cost-Benefit Analysis

White Boards

#Durable Goods
ProHub Comment

This case tests quantitative cost-benefit analysis with a critical insight hidden in damage rates. Candidates must recognize that outsourced vendors handle goods less carefully, resulting in higher product loss (25% vs 15%), which when factored into per-unit costs, makes outsourcing more expensive despite lower per-pound shipping rates. The case requires multi-step calculations and the ability to move beyond simple rate comparisons.

Estimated Time 15 minutes
Difficulty Medium
Source Chicago Booth
50 / 100
Our client is a manufacturer of white boards. The client ships the boards from its factories to its distribution center and then from the distribution center to all of its retail locations. To meet their shipping needs, the client presently uses in-house trucking services. They have approached Bain & Company asking for advice as to whether they should look to outsource their trucking services instead.

Clarifying Information

  1. The transit damage is 15% of the load when in-house trucking services are used.
  2. For outsourcing trucking, the transit damage is 25% of the load.
  3. The company ships 50 lbs. of white boards daily to the distribution center, and the distribution center ships the same amount to the retail stores every day.
  4. If outsourced, the vendor charges $8.50/lb., irrespective of distance.
  5. Current in-house costs per day: Maintenance ($260) + Fuel ($350) + Salaries ($240) = $850/day.