Make-or-buy decisions, Business Law and Ethics

Make-or-Buy Decisions 

Make or buy decision is a strategic decision that any organisation has to make, between producing an item internally and buying it externally. 

With the changes in the approaches of contracts, the issues related to make or buy decisions have also started increasing. Make or buy decision is a fundamental issue to be addressed by any company. The competition is increasing globally; as a result the manufacturing companies are re-evaluating their existing processes, technologies, manufactured parts and services in order to focus on strategic activities.  

There are finite resources in the company which makes the company incapable of affording all the activities in house. In the PMBoK, make-or-buy  decision is an output of the plan procurement process which is then used as an input to the conduct procurement process. So the organisation must decide to make or buy the product or service which are cost effective. The decision can be made at the individual resource level, or for an entire deliverable or for the project itself. The last option is decided right at the conception stage of the project.  

The cost evaluation technique used for the make or buy decision should be based on both direct and indirect costs. Direct costs include goods, materials, equipment, facilities and employee salaries. Indirect costs (some of which tend to get missed in the evaluation) include training costs, management costs, administrative overheads, and on going maintenance costs. 

Even though cost evaluation is the fundamental issue, there are other considerations in make or buy decision which include: 

  • Capacity: Can the company take on a product or service of this scale? 
  • Skill level:  Do the persons involved in the project posses the  skills required or do they need any additional training based on the project? 
  • Trade secrets:  The company should maintain the secrets of a magic formula for a product or service but if this is not disclosed, then the product or service cannot be outsourced.  
  • Staff availability and existing workload:  If the staffs engaged in the project are already working on another priority project, then they cannot be available for this project.   
Posted Date: 9/27/2012 2:48:40 AM | Location : United States







Related Discussions:- Make-or-buy decisions, Assignment Help, Ask Question on Make-or-buy decisions, Get Answer, Expert's Help, Make-or-buy decisions Discussions

Write discussion on Make-or-buy decisions
Your posts are moderated
Related Questions
Advantages of Arbitration (a) First is, Speed : It is a faster scheme of dispute resolution (b) Second is, Convenient : Parties are free for determine as; Th

District Magistrate's Court Establishment Further District Magistrate's Courts are established to each district in England thgrough S.7(1) of the Magistrate's Courts Ac

Describe in detail about the - policy makers Elections are used to choose the policy makers, it is not the only mechanism. Since the authority to make decisions may be vested i

How state succession deals with debts and loans The issue relating to state succession deals with debts and loans. When a new state comes into existence, the question arises as

Relate the military and economic power with each other The balance of military and economic power of equilibrium is therefore desirable. A balance of power is a pre-requisite f

Explain about the international commission of United Nations. The International Law Commission: Established into 1948 year, the mandate of International Law Commission is

Hirer Requires Information from the Owner Conversely the hirer requires some information from the owner whether he should send him a written request so and then like pay to hi

State in brief about the term - Nash equilibrium For the foreign country its reaction function cuts its indifference curves where they are vertical. Both these reaction functio

Determine the concept of credibility Let us make it clear that credibility of a policy and that of a policy maker are two different things. Institutional constraints may make a

Contents of Group Accounts: By s.152(1), the group accounts laid before a company shall give a true and fair view of the state of affairs and profit or loss of the company and