make or buy decision essay

Make or buy decision essay

Make-or-buy decision is the act of making a strategic choice ing an item internally (in-house) or buying it externally (from e supplier). Make-or-buy decisions usually arise when a firm that ped a product or part—or significantly modified a product —is having trouble with current suppliers, or has -or-buy analysis is conducted at the strategic and operational sly, the strategic level is the more long-range of the les considered at the strategic level include analysis of , as well as the current environment.

Issues like tion, competing firms, and market trends all have a strategic the make-or-buy decision.

It prescribes that a firm outsource all items that fit one of the following three categories: (1) the item is critical success of the product, including customer perception of t attributes; (2) the item requires specialized design cturing skills or equipment, and the number of capable and ers is extremely limited; and (3) the item fits well within 's core competencies, or within those the firm must develop l future plans. Items that fit under one of these three considered strategic in nature and should be produced internally if -or-buy decisions also occur at the operational level.

Analysis te texts by burt, dobler, and starling, as well as joel wisner, leong, and keah-choon tan, suggest these considerations that considerations (less expensive to make the part).


Use of excess plant capacity to help absorb fixed to exert direct control over production and/or secrecy is required to protect proprietary to maintain a stable workforce (in periods of declining sales).

Too small to interest a l of lead time, transportation, and warehousing cal, social or environmental reasons (union pressure).


That may influence firms to buy a part externally include:Suppliers' research and specialized know-how exceeds that of considerations (less expensive to buy the item).

Production facilities or insufficient to maintain a multiple-source ct managerial control not essential to the firm's two most important factors to consider in a make-or-buy decision and the availability of production capacity.

Burt, dobler, ng warn that "no other factor is subject to more retation and to greater misunderstanding" cost include all relevant costs and be long-term in nature.

Burt, dobler,And starling provide the major elements included in this follow-on costs stemming from quality and related considerations for the "buy" analysis include:Any follow-on costs related to quality or will note that six of the costs to consider are incremental.


If a firm does not currently have ty to make the part, incremental costs will include variable the full portion of fixed overhead allocable to the part'cture. That is, fixed costs, ions of sufficient idle capacity, are not incremental and should considered as part of the cost to make the cost is seldom the only criterion used in a make-or-buy decision,Simple break-even analysis can be an effective way to quickly surmise implications within a decision.

Suppose that a firm can ent for in-house use for 0,000 and produce the needed parts for.

Ignoring the cost of negotiating a contract with the supplier,The simple break-even point could easily be computed:Therefore, it would be more cost effective for a firm to buy the part is less than 50,000 units, and make the part if demand exceeds.


However, if the firm had enough idle capacity to produce , the fixed cost of 0,000 would not be incurred (meaning it is incremental cost), making the prospect of making the part too y gardiner and john blackstone's 1991 paper in ational journal of purchasing and materials ted the contribution-per-constraint-minute (cpcm) method -or-buy analysis, which makes the decision based on the theory aints.

They also used this approach to determine the sible component price (mpcp) that a buyer should pay rcing.

In 2005 jaydeep balakrishnan and chun hung cheng noted er and blackstone's method did not guarantee a best a complicated make-or-buy problem.

To provide "what if" analyses to s toward finding an optimal have started to realize the importance of the make-or-buy overall manufacturing strategy and the implication it can have ment levels, asset levels, and core competencies.

In response , some firms have adopted total cost of ownership (tco) procedures orating non-price considerations into the make-or-buy ishnan, jaydeep, and chun hung cheng. Keong leong, and keah-choon ples of supply chain management: a balanced t about this article, ask questions, or add new information about this topic:The make-or-buy decision is the act of making a strategic choice ing an item internally (in-house) or buying it externally (from e supplier).

Car buying

Keong leong, and keah-choon ples of supply chain management: a balanced t about this article, ask questions, or add new information about this topic:A consumer's buyer behavior is influenced by four major factors; cultural, social, personal, and psychological factors.

Although many of these factors cannot be directly controlled by marketers, understanding of their impact is essential as marketing mix strategies can be developed to appeal to the preferences of the target purchasing any product, a consumer goes through a decision process.

This process consists of up to five stages; problem recognition, information search, evaluation of alternatives, purchase decision and post purchase behavior.

The length of this decision process will vary, ranging from a explains the outside influences of others on our purchase decisions either directly or al factors include such variables as age and lifecycle stage, occupation, economic circumstances, lifestyle (activities, interests, opinions and demographics), personality and self concept.

These may explain why our preferences often change as our `situation' ogical factors affecting our purchase decision include motivation (maslow's hierarchy of needs), perception, learning, beliefs and people often influence a consumers purchase decision.

The marketer needs to know which people are involved in the buying decision and what role each person plays, so that marketing strategies can also be aimed at these people.

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