Hollenberry Inc is deciding on whether to outsource its call center operations.

Question

Hollenberry Inc is deciding on whether to outsource its call center operations. if they out source the call center most of its employees would lose their jobs as they do not wish to relocate to the new call center which is located close to the metropolitan area. the following cost were identified: labor $650,000.00, bldg rent $60,000.00, phone charges $35,000.00 other support costs $42,000.00. If the call center is outsourced the related office equipment would be sold to the new call center for $20,000.00, the equipment was originally bought for $100,00.00. the bldg will no longer be rented, call center employees salary will be transferred to the outside call center. the other support cost are associated with maintaining the bldg and office equiptment for the current call center. if hollenberry outsource the call center and te same number and pattern of call soccur next year, hollenberry will pay the new call center firm $700,000.00 for the year. Question: what should Hollenberry do, provide reasons for your recommendation?

Explanation / Answer

Relevant cost and benefits
=======================
                                       In-House                Outsource
                                     Call Center              Call   Center
Labor                             $650,000                     0
Building Rent                    $60,000                      0
Phone Charges                  $35,000                      0
Other Support Costs          $42,000                      0
Annual Fees to Outside
Call Center                                 0                  $700,000
Sale of Old equipment                 0                  ($20,000)
                                    _____________________________
Total Cost                      $787,000                  $680,000
                                   ==============================
First Year Net Benefit                      $107,000 ($787T - $680T)
Consequent years' Savings                $87,000   ($787T - $700T)

Hollenberry should evaluate the reliability and service quality of outside call center in responding to Hollenberrys customers. Given Hollenberrys worldwide operations, the greater number of multilingual operators available at the outside call center could be an important feature. Finally, Hollenberry must factor in the prospect of laying off employees, many of whom have worked at Hollenberry for over 20 years.

If outside Call center is relable and capable of handling calls of all the customers efficiently then only Hollenberry should switch over to outside call center.

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