The dynamics of the automobile industry have been very volatile in the last few decades, and the case depicts how the changing environment has affected the Bridgestone Industries.
The Bridgestone Industries is a supplier of components and parts for the three main automobile manufacturing companies in theUnited States. The increase in the fuel prices as well as the technological evolution and the ease of availability of cheaper, cost efficient imported European and Japanese automobiles have taken a significant section of the demand from the USbased manufacturers. As a result there is less demand for products and components from the Bridgestone Industries who are facing low volume of sales and therefore low profitability. In addition to this the increasing costs and overheads in the company are aggravating the cost position of the Bridgestone Industries by decreasing the profit margins per sale.
The paper provides an analysis of the cost position of the Bridgestone Industries and the overheads associated with the production lines being manufactured by Bridgestone Industries at the ACF. The overhead burden rate for the company is determined to be 437% in 1988, 434% in 1989, 577% in 1989 and 562% in 1990. A budget is also drafted for the year 1991 which considers outsourcing the manifold production line. The budget has depicted that through the outsourcing of the manifold production line significant cost savings in the expenses for direct labor, direct material and the overheads can be achieved which can result in the lowered overhead burden rate of 307% only. As a result it is proposed that the Bridgestone Industries should seek to outsource the manifold production line as it can be highly advantageous for the cost position of the company.