Corporate Sentry, Inc.
Ref: Consideration of the Best Manufacturing Option
This letter is written as a response to address the issues raised in the communique you sent to us (the Audit Team). It is with great pleasure that I communicate back to you. Much of the possible feedback given is highly appreciated and we always look forward to offer our clients high-level satisfaction with our services.
In address to your concerns, the consideration of the best manufacturing option is fundamental to sustain your firm’s productivity and competitiveness. In reviewing your letter, I noticed that you want to increase your competitiveness by increasing your margins through cutting of costs. The proposed different options are analyzed as explained below.
- Onshore production. This comprises of production of the company’s margins within the United States. The approach is bound to eliminate custom duties and taxes involved in getting the products into the United States. Also, it imposes a high quality and standards mark in association to the production in the United States. As well, the approach posits a higher competitiveness of the products in the international markets as they are traded as American products. However, higher production costs are bound to be incurred as labor compensations in the United States are much higher compared to other countries. Therefore, the approach fails to provide the standardized mechanism required to cut down production costs.
- Offshore production. The offshore production option comprises of choosing an emerging economy country such as China, India, or the Philippines as the production base. In this case, India would be a better option (Kaijumba, Nagitta, Osra & Mkansi, 2020). This is informed by the fact that; India is relatively cheaper in labor costs as compared to China. The availability of low labor is sufficiently available in India. The most crucial aspect is to provide the necessary training to ensure that the required standards and quality of the products is met. Also, India offers better import/export and exchange rates with the United States. However, India is bound to experience slowness and additional costs in the preparing of qualified team. Hence, in the short-term it can be a costly endeavor but in the long-term it offers more promising benefits.
- Outsource to a third party vendor. Outsourcing of a third party vendor poses more risks that benefits. Such include, revealing of company’s competitive proprietary secrets to competitors. This is bound to create a vulnerability point to the company as the vendor may potentially become its main competitor. Therefore, not a viable manufacturing option.
Engineered costs comprise of the costs associated with the output such as purchase of raw materials, labor, and utilities (Xu et al., 2012). Discretionary costs comprise of the costs incurred in an unnecessary manner. The discretionary costs can be eliminated to minimize the production expenses and help cutting down the total cum required in the production process (Sujit & Kumar, 2016). In this case, the application of discretionary costs aligns with the utilization of the offshore production approach. This is designed to minimize the production costs at the lowest possible point. In turn, this is bound to facilitate the company to mitigate the production costs and regulate the cost of the products to meet the company objectives. Furthermore, a consideration of custom and excise duties on products both onshore and offshore is essential to making the best business decision. Also, an evaluation of the relations of the primary and producing country is essential to ensure the flow of goods from one country to another. Therefore, as an audit consultant firm, we would offer extensive analysis of all the three options, illustrate the impact of different regulations and economic environment as it impacts on the company’s performance. Consequently, the best option is one that is critical to meeting the company’s objective of increasing margins and cutting production costs.
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