J.K. FACTORY

J.K FACTORY

Cost Reduction Study

In-House Fabrication v/s Sub-Contracting

AACE Member Number: 64267

07/09/2011

Abstract

The aim of this paper is to highlight the in-depth cost analysis of manufacturing steel plates in-house by the J.K Tank Construction or to sub-contract its manufacturing operations to “X” factory, which is currently being sub-contracted. Over the past three years, it has been observed that J.K Construction sub-contracted 90% of its operations to the third parties. Due to this, they are not being able to meet their deadlines. The outcome of this out sourcing plan shows negative, as J.K Tank Construction consumes more time in the completion of their projects. In addition to this, the company's cost is also increasing which reduces their profit margins and this also impacts negatively on their goodwill. The cost control department of the J.K Tank Construction raised red flag which is highlighting the time delays and increasing cost which is declining company's growth, reliability and accountability. In reaction to this, the management of the company decided to take such steps which will reduces the risk of delaying the projects, ultimately cost reduction. This paper was prepared by the management team of the company to analyse whether self production is the way to increase the profitability of the company or it should outsource its operations to attain the profits. The team considered different factors like time, cost and efficiency. The team come up with the conclusion, whether they have to outsource their operations or run their operations by the company itself to resolves their issues.

Table of Contents

Introduction3

Objectives4

Products4

Current position5

Competitive advantage5

Growth Plan5

Marketing Plan6

Swot analysis6

Market demand8

Team & Management Structure9

Financial budget and forecast10

Start-up cost/expenses10

Profit and loss forecast12

Break-even Analysis17

Projected Cash Flow19

Conclusion20

References21

Appendix23

J.K FACTORY

Introduction

J.K Tank Construction is a UAE based company which is planning to become the leading contractor of Tanks construction all over the Gulf by having its own factory (J.K Factory). The company offers its clients different type of tanks with complete manufacturing and arrangement. The company's mission is to save cost by approximately 30% while effectively utilizing the philosophy of high quality, advance technology and client satisfaction.

J.K Factory will be the sole sub-contractor for the J.K Tank Construction and will perform functions of all manufacturing work which includes Preparation, Plate Rolling, Shot Blasting and Painting. The factory will have the potential to target its external clients with its durable and reliable work performance. The overall market for steel fabrication is immense in the country especially with the growth in the construction industry mainly in oil, gas and the district cooling.

Below is the summary of the profit that is expected to be generated by J.K factory over a period of 5 years by reducing cost on overall project which reflects the profit to the main company (J.K Tank Construction).

Note: The rates of Preparation, Plate Rolling, and Shot blasting are matching with the market rates.

The above given chart shows the projected financial highlights for the J.K. factory. The projected financials of the company shows interesting figures. It is estimated that the sales will increase and in year 5, ...