(L.OBJ. 4) Making outsourcing decisions [10—15 min] Rita Riley manages a fleet of 200 d...

(L.OBJ. 4) Making outsourcing decisions [10—15 min]

Rita Riley manages a fleet of 200 delivery trucks for Greely Corp. Riley must decide if the company should outsource the fleet management function. If she outsources to Fleet Management Services (FMS), FMS will be responsible for maintenance and scheduling activities. This alternative would require Riley to lay off her five employees. However, her own job would be secure; she would he Greely’s liaison with FMS. If she continues to manage the fleet she will need fleet-management software that costs $8,000 a year to lease. FMS offers to manage this fleet for an annual fee of $280,000. Rita performed the following analysis:

Requirements

1. Which alternative will maximize Greely’s short-term operating income?

2. What qualitative factors should Riley consider before making a final decision?