Muenster Pump

I. Major Facts

Muenster Pump Company has been in business over 40 years, and is its town’s largest employer. Bob Dorf, grandson of the founder, is the firm’s president, and he hired his cousin, Terri, as the purchasing manager two years ago. Bob is pleased with Terri’s work. Since hiring her, materials costs have been reduced by 10% of cost of sales. Muenster Pump has always been as self-sufficient as possible, but another foundry (Union Foundry) contacted Terri and has offered case housings at “an attractive price.” Muenster’s most popular size of case housing, L-1012, which is 60% of the firm’s demand and sells for $500, was quoted by Union Foundry at $90. Delivery of the first order (minimum 100 units) is 120 days, and delivery for future orders is 60 days. Terri obtained quotes from two other foundries, as well, and they cited $94 and $98 for L-1012 case housings. Terri asked her uncle, Ned, how much it cost Muenster to produce its own case housings, but Ned would not answer. He told Terri they produce quality products that can’t be found elsewhere in the industry, they can respond to demands quicker than others, and 16 men would lose their jobs if Muenster bought case housings instead of made them. Terri then spoke to Bob, who told her L-1012s cost $180 for Muenster to make. Materials and labor are about $60, and 70% of overhead is for fixed costs.

II. Major Problem

Should Muenster Pump Company continue to make L-1012 case housings, or should they buy from another foundry, such as Union Foundry?

III. Possible Solutions/Alternatives

A. Continue making case housings. There are many things to consider in this make or buy decision. Clearly, Muenster can purchase case housings cheaper than they can make them, ultimately increasing our profit. However, there are other benefits to consider that would lead me to decide to continue making case housings under this solution. First, local community ties are important to our business. By continuing...