Originally, JIAN manufactured its software kits in-house and handled all order processing and product distribution. As sales increased, JIAN was faced with the challenge of how to best manufacture and distribute their software. JIAN could either ramp up its internal operations or outsource them to Gung-Ho – a turnkey manufacturer and distributor of software kits.
Would it be more cost-effective for JIAN, a software publisher, to manufacture and distribute their own software kits or to outsource these activities to Gung-Ho?
After considering all of the costs involved, JIAN decided it would be most cost-effective to outsource their software manufacturing and distribution to Gung-Ho for the following reasons:
No cost for a manufacturing facility and warehouse. JIAN does not have to pay for a manufacturing facility and warehouse. More importantly, it does not have to worry about having a facility that is either too small or too large. By utilizing Gung-Ho, JIAN is assured to have the appropriate amount of space without any wasted cost.
No cost for personnel. In addition to not paying for manufacturing and warehouse personnel, JIAN does not have to pay for personnel to handle such functions as monitoring inventory, purchasing and paying for component parts, balancing overs and unders, expediting and tracking, scheduling builds, managing and fulfilling customer orders, etc. Gung-Ho has a dedicated JIAN Program Management Team that diligently oversees all of these activities. JIAN simply forecasts its requirements and Gung-Ho handles all of JIAN's manufacturing and distribution.
No inappropriate amount of labor. JIAN, like most software publishers, has product releases where an unusually large quantity of software kits needs to be manufactured and distributed in a very short period of time. Consequently, JIAN would have too few trained employees to handle the "spikes" in production or too many employees during slow periods. By blending the spikes and slow periods of multiple clients, using multiple facilities, and load-balancing multiple shifts, Gung-Ho efficiently manages labor requirements and ensures the correct amount of labor is used for every project.
No charge for raw materials inventory. JIAN is not invoiced for raw materials inventory. JIAN is only invoiced as materials are used to make finished goods. And since Gung-Ho closely monitors JIAN's sales and only builds finished goods just before they are required, JIAN usually has their products sold before they have to pay for them.
No cost for scrap or non-conforming materials. JIAN is only invoiced for materials that have passed quality assurance inspection and are actually utilized in finished goods kits. This eliminates any cost incurred for scrap or non-conforming materials as well as the personnel expense to handle the return of any non-conforming materials (e.g., purchasing, receiving, shipping, and accounting).
No charge for storage. JIAN does not have to pay storage charges for pallets of goods stored at Gung-Ho so long as the inventory is active and continues to move.
No charge for integrated e-commerce and order management. JIAN does not have to pay for Gung-Ho’s
Go-Cart – an e-commerce shopping cart that provides lower costs for the processing and fulfillment of Web orders. JIAN reports that by using Go-Cart, they receive more than 11% in additional revenue, quicker deposits into their bank account, reduced shopping cart abandonment, faster and less expensive shipping, fewer customer service calls, and more complete sales information since their e-commerce orders seamlessly integrate with their call center and purchase orders. JIAN does not have to pay for GOLD, the "Gung-Ho On-Line Data" system, a secure Web portal that enables JIAN to use a Web browser to manage their orders on-line and receive real-time information regarding virtually every aspect of Gung-Ho's manufacturing and distribution operations.
No additional cost for rush last-minute manufacturing and shipping. Gung-Ho is well known for its ability to manufacture and ship in record time. Typically, builds scheduled by noon are built and shipped the following day. Same day build and ship's are available as well. Gung-Ho's fulfillment operation is structured so that electronically transmitted orders are shipped the same day they are received. Upgrades and major releases are scheduled so that hundreds of thousands of kits can ship on a daily basis. This built-in flexibility saves JIAN the cost it would otherwise have to pay for extra personnel to handle rushes and/or last-minute manufacturing and shipping.