Make or Buy Decision

MAKE OR BUY DECISION

BY NITHIN DUGAR 07-BU-034

INTRODUCTION 

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The make-or-buy decision is the act of making a strategic choice between producing an item internally (in-house) or buying it externally (from an outside supplier). Make-or-buy decisions usually arise when a firm that has developed a product or part—or  significantly modified a product or part—is having trouble with current suppliers, or has diminishing capacity or changing demand

DECISIVE THOUGHT ON MAKE OR BUY DECISION FACTORS  FACTORS  BUY DECISION

MAKE DECISI0N

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Cost considerations Desire to integrate plant operations Better quality control Unreliable suppliers Quantity too small to interest a supplier  No competent suppliers Need to exert direct control over production and/or quality

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Lack of expertise Small-volume requirements Indirect managerial control considerations Brand preference Item not essential to the firm's strategy Suppliers' research and specialized know-how exceeds that of the buyer 

ADVANTAGES MAKE DECISION 

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It supports organizationa organizationall continuity by allowing  junior-levell managers to  junior-leve learn the business from more senior-level executives. tacit knowledge has been shown to play a vital role in what has been termed "practical intelligence"

BUY DECISION 

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the rapid replacement of  personnel, particularly when you need to fill senior-level leadership positions just taken root . Buy Strategy is that it can help you build your  internal bench strength while simultaneously hamstringing your  competitors.

DIS- ADVANTAGES MAKE DECISION 

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If you are just launching your  internal development, assessment and succession efforts, be willing to accept the fact that that you are in for a multiyear commitment that will take a few years to begin to show returns. Companies that become heavily reliant on the Make Strategy can fall into the trap of becoming excessively insular. Simply because it failed to periodically compare its performers against those of  outside players.

BUY DECISION 

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The Buy Strategy can prove incredibly costly, since the current market value for top-notch leaders may be quite high when compared to the compensation currently being paid to those incumbents who have slowly worked their way up the internal salary escalator. The Buy Strategy can also prove to be very disruptive to an organization if it takes the form of  the rapid, large-scale importing of  outside talent. It typically requires organizations to accept a higher level of risk for  their leadership staffing decisions.

MAKE OR BUY DECISION PROCESS

CONCLUSION 

The component or part manufacture could be a specialist in that t hat particular product. He may produce in large number and will be able to make the product at much lower price than if one had in-house production unit as it would generally be running far below capacity.

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Being a specialist, he may generally have the tendency to update his technology. Investments in latest technology would also be possible for him in view of the t he good returns of investments.

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If most of the items are to be made m ade in-house, there will be problems of inadequate managerial attention. This would affect quality assurance.

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Ancillary units are set up by the main company, sometimes as joint sector companies, quite often the main plant.

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Excellent inventory reduction is possible as an organization can buy its exact requirements, just in time can be practiced.