Make or Buy decisions
Make or buy decision
Make or buy decision is the determination of the procurement program in which whether feedstock for production should be made by a company itself or acquired from a third party. In recent years, a trend has been observed in some sectors toward reducing the depth of production in companies in favour of increased external procurement.
Mostly a company tries to insource or outsource the decision of making or buying. Insourcing means the use of resources within the firm to provide products or services. Outsourcing means the companies use the supply chain partners to provide products or services. Let us see what are other things involves in Make or Buy.
Factors deciding a firm to Make or Buy decision
A firm’s Make-or-Buy choices should be based on the following considerations. They are Strategic impact, Available capacity, Expertise, Quality considerations, Speed, Cost of buying.
General deciding factors of Make or Buy decisions
Factors Deciding Make or Buy Decisions are Impact on current vendor relation, Nature of demand, Availability and lead time, Current capacity utilization, Develop new strategic process capabilities and Break even analysis.
Reasons for Making
Reason for making depends upon maintaining core competence, Lower production cost, Unsuitable suppliers, Assure adequate supply (quantity or delivery) etc.
Reasons for Buying
Reason for buying depends upon Frees management to deal with its primary business, Lower acquisition cost, Preserve supplier commitment, Inadequate capacity, Reduce inventory costs, Item is protected by a patent or trade secret etc.