Question

For companies operating in the global marketspace, make or buy (outsourcing), special order, or equipment purchasing decisions can have qualitative considerations, which may or may not outweigh a favorable calculated outcome. In this assignment, you will dialogue with your classmates and instructor on what some of those considerations could be and your thoughts on how the qualitative considerations should be weighed in a company’s decision making.

Here’s the scenario:

The pharmaceutical industry faced a challenging situation in September 2017 with the significant weather disruption incurred by their manufacturing plants when the island of Puerto Rico was hit by damaging Hurricane Maria. How big of a deal was it for the industry? For many years, favorable tax laws made it cost beneficial for pharmaceutical companies to locate manufacturing plants in Puerto Rico. In fact, almost 75% of Puerto Rico’s exports in 2016 were pharmaceutical products according to the Bureau of Labor Statistics. Shortly after Maria hit, the U.S. Food & Drug Administration identified a list of more than 40 high-priority pharmaceutical drugs where short term distribution disruption could be an issue (Peters, 2017). That’s a huge hit to the industry which it likely had not planned for and would have to incur significant additional costs to remedy. Bye-bye to some of those cost savings.

If the CEO of a newer pharmaceutical company was in the process of looking to outsource the manufacturing of a medication currently produced at a plant in the U.S. to Puerto Rico when Maria hit, should (s)he immediately stops his/her consideration of the plans because of the hurricane even if it was financially favorable to outsource there?

Vetting each qualitative and quantitative matter takes time and resources, but it is necessary to make sure the company makes sound business decisions from both perspectives.

Your initial posting should be 250-500 words

Answer 1

Introduction to scenario

For companies operating in the global market space, make or buy (outsourcing), special order, or equipment purchasing decisions can have qualitative considerations, which may or may not outweigh a favorable calculated outcome.

Scenario

The pharmaceutical industry faced a challenging situation in September 2017 with the significant weather disruption incurred by their manufacturing plants when the island of Puerto Rico was hit by damaging Hurricane Maria. How big of a deal was it for the industry? For many years, favorable tax laws made it cost beneficial for pharmaceutical companies to locate manufacturing plants in Puerto Rico. In fact, almost 75% of Puerto Rico’s exports in 2016 were pharmaceutical products according to the Bureau of Labor Statistics. Shortly after Maria hit, the U.S. Food & Drug Administration identified a list of more than 40 high-priority pharmaceutical drugs where short term distribution disruption could be an issue (Peters, 2017). That’s a huge hit to the industry which it likely had not planned for and would have to incur significant additional costs to remedy. Bye-bye to some of those cost savings

If the CEO of a newer pharmaceutical company was in the process of looking to outsource the manufacturing of a medication currently produced at a plant in the U.S. to when Maria hit, should (s)he immediately stops his/her consideration of the plans because of the hurricane even if it was financially favorable to outsource there?

Vetting each qualitative and quantitative matter takes time and resources, but it is necessary to make sure the company makes sound business decisions from both perspectives.

Evaluating the Scenario

Being the CEO of a newer pharmaceutical company was in process of looking for outsource the manufacturing of a medication currently produced at a plant in the U.S. to Puerto Rico when Maria hit,

yes s(he) should immediately stop his/her consideration of the plans though it is financially favorable to outsource, if s(he) will only consider quantitative aspect of cost reduction it might be wrong decision seeing following qualitative considerations:

1. it might be short term gain, but in long run govt won’t provide such tax benefits.
2. Outsourcing is a crucial decision as it involves high cost, time and efforts once such decision is taken its irreversible in short run so just seeing short run benefit s(he) should not take such decision.
3. If that area is hurricane affected there might be having many problems related to proper in structural facilities required to grow a pharma firm eg. Power supply, transportation, etc
4. Puerto Rico is an island seeing its whether condition & history it is not advisable to outsource manufacturing there as firm may face stoppages to productions many a times due to weather and various rain & hurricane issues in future too as past.
5. Due to tax benefits provided to Puerto Rico , many other are already planning for starting new units and some of them were looking for outsourcing this may lead to increase in prices of raw material , wage rate , cost of ancillary services etc it will in turn increase cost and increase competition too.
6. Before outsourcing firm should consider various factors like location advantage, availability of labor, availability of basic facilities, prices of raw material, after analyzing each of this factor it’s a strict No-No to this plan.

Conclusion

For companies operating in the global market space, make or buy (outsourcing), special order, or equipment purchasing decisions can have qualitative considerations, which may or may not outweigh a favorable calculated outcome.

In this scenario qualitative considerations says s(he) should not go for outsourcing.

For short term its fine to look only for favorable financial gain but for long term it’s very important to see both quantitative as well as qualitative aspects then to take decisions.