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Supply Chain Outsourcing at Db Toys

Essay by   •  September 26, 2011  •  Case Study  •  1,085 Words (5 Pages)  •  2,941 Views

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ANALYSIS

On

Supply Chain Outsourcing at DB Toys

1. What is the value proposition that Inflection brings to DB Toys

The total IT budget of DB Toys is around $60 million as per the records and the 50% of the entire IT budget, i.e $30 million is spend on Supply Chain alone. The intention of the company is to reduce the IT expenditure towards the supply chain, which is very above the industry average.

Here M/s Inflection made an analysis and found lot of inefficiencies in the existing Supply Chain Process that are lagging behind the industry average. DB Toys resources were only focused in the maintaining the status quo rather than improving the systems. Here M/s Inflection brings two proposals with three options in each for reducing the expenditure as well as for smoothing the entire operations by outsourcing the business applications as well the business process. Here M/s Inflection claims that, by just outsourcing the Business Application itself reduces the IT Supply Chain Expenditure by 20% a year. The same man power can be utilized for some other business operations to make the entire operations a success. M/s Inflection suggested a design-build-run model that outsources the entire business process that enhances the entire business process in a professional way that can reduce the overall expenditure and increases the overall efficiency.

2. What are the cost savings in each option

Please find the below mentioned table with the cost incurred per year for all the suggested models. The expenditure is mentioned in millions.

Business Application Outsourcing (in Million) assuming the growth rate of 2% per year

Fixed Type

Year 1 2 3 4 5 6 7

Expenditure 27.36 21.49 21.62 21.76 21.89 22.04 22.18

Cost Plus

Year 1 2 3 4 5 6 7

Expenditure 28.31 22.16 22.03 21.89 21.78 21.66 21.55

Transaction based

Year 1 2 3 4 5 6 7

Expenditure 176.35 176 181.76 188 195 202 208.8 plus incentives

Business Process Outsourcing (in Million) assuming the growth rate of 2% per year

Fixed Type

initial cost

Year 1 2 3 4 5 6 7 8 9

34 Expenditure 35.33 36.66 38.14 39.78 41.6 43.64 45.9 48.41 51.32

Cost Plus

Year 1 2 3 4 5 6 7 8 9

34 Expenditure 36.16 36.9 38.38 40 41.81 43.82 46.06 48.54 51.32

Transaction based

Year 1 2 3 4 5 6 7 8 9

34 Expenditure 218.07 228.5 239.74 251.94 265.3 279.51 294.86 311.45 329.41 plus incentives

The detailed calculations are mentioned in the attached file.

3. Which option should DB Toys Choose?

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