Making outsourcing decisions Priscilla Nailey manages a fleet of 375 delivery trucks for Jones Corporation. Nailey must decide if the company should outsource the fleet management function. If she outsources to Fleet Management Services (FMS), FMS will be responsible for maintenance and scheduling activities. This alternative would require Nailey to lay off her five employees. However, her own job would be secure; she would be Jones’s liaison with FMS. If she continues to manage the fleet she will need fleet-management software that costs $8,250 a year to lease. FMS offers to manage this fleet for an annual fee of $285,000. Nailey performed the following analysis:
JONES CORPORATION
Outsourcing Decision Analysis
Â
Retain In-House
Outsource to FMS
Difference
Annual leasing fee for software
$ 8,250
5          —
$Â Â Â Â 8,250
Annual maintenance of trucks
147,000
—
Total annual salaries of five other fleet management employees
175,000
Fleet Management Services" annual fee
285,000
(285,000)
Total cost 1 cost savings
$ 330,250
5Â 285,000
$Â Â 45,250
Requirements
1. Which alternative will maximize Jones’s short-term operating income?
2. What qualitative factors should Jones consider before making a final decision?
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