Make or Buy Decision

How does make or buy decision effect a production process?

When you are involved in the production process you will definitely come across such a scenario. In such a situation you will have to decide up on producing the item or goods internally or outsourcing it.  It is this decision when made correctly will definitely help you save a lot of money and time, and at the same time a wrong choice will leave a very drastic influence in every future production decision you make. It the ability of the person to make the timely decision of whether to make or buy will distinguish the one from the others.

Other factors that are involved in the make or buy decisions are:

• Cost of production
• Cost of raw materials
• Cost of labour
• Time spent in the research and development stage.
• The duration that the final product will take to be fully completed
• The financial capability of the organization (both own organization and outsourced organization)
• The in house expertise
• The volume requirements
• The critical nature of the item
• The desired standard of output and quality
• Need for and updated technology and up gradation of the product
• The special requirements for the item
• Need of the customers.
• The secret nature of the product may demand the product to be made in house.
• The reliability of the suppliers or work force
• To maintain the standard quality of the organization
• Political, environmental or social reasons may influence the make or buy decisions
• To control the additional expenses that might occur in warehouse cost, transportation cost and many more
• A need to have a stable work force

Based on the issues and needs in an organization the factors influencing the make or buy decision will definitely vary. The factor which will make the organization to buy the goods needed might also cause the other organization to make the goods needed. As the make or buy decision is totally based on the subject, the analysis on the issue will definitely give you a deep insight of all the issues that you might be likely to face.

Questions:

• What are the factors that influence the make or buy decision?
• What is the impact of the make or buy decision.