“To determine the best production method, Nick is faced with the decision to make or buy his salsa. Many factors affect this decision, such as expenses, risks, and expected costs per unit of salsa produced. Five distinct possibilities of production exist for Nick to evaluate, including three manufacturing methods and two possible outsourced suppliers. Manufacturing options comprise of fully developed automation, partially developed automation, or using existing equipment for production. Any internal manufacturing process will increase the risk of ingredient supply fluctuations as all ingredients except salt are imported from various locations in Mexico. If outsourced, the supply of salsa can come from two producers, Sierra Salsa or Foods of Monterey. By analyzing these options, we will determine which selection is the least costly and thereby the best method of production for Nick to implement. ”

“Given these two production possibilities, it is clear that while the complete automation method requires the largest initial expenditure, it generates the highest cost savings and the highest successful production rate, clearly defining it as the best solution for Nick to implement.

In reaching the figures for all of these methods of production, several assumptions needed to be made. To accurately calculate the total cost for the duration of the project, four years of production needed to be used. To adjust for sales growth, the financial growth forecast was used to inflate our initial forecasted production of 1,421,280 units. This figure was inflated 28% for year 2, 20% for year 3, and 11% for year 4 to calculate the increase in sales. We also assumed all failed batches would be reworked instead of discarded in the calculation of our expected cost. Finally, we assumed each make or buy method had comparable supply risks and fluctuations as either entire finished goods or individual ingredients needed to be imported from Mexico. ”