Make or Buy Decision
Definition of 'Make-Or-Buy Decision'
The act of choosing between manufacturing a product in-house or purchasing it from an external supplier. In a make-or-buy decision, the two most important factors to consider are cost and availability of production capacity.
An enterprise may decide to purchase the product rather than producing it, if is cheaper to buy than make or if it does not have sufficient production capacity to produce it in-house. With the phenomenal surge in global outsourcing over the past decades, the make-or-buy decision is one that managers have to grapple with very frequently.
Factors that may influence a firm's decision to buy a part rather than produce it internally include …show more content…
When it comes to larger and high impact decisions, usually organizations follow a standard method to arrive at a decision. This method can be divided into four main stages as below. 1. Preparation:
a. Team creation and appointment of the team leader
b. Identifying the product requirements and analysis
c. Team briefing and aspect/area destitution
2. Data Collection
a. Collecting information on various aspects of make-or-buy decision
b. Workshops on weightings, ratings, and cost for both make-or-buy
3. Data Analysis
1. Analysis of data gathered
1. Feedback on the decision made
By following the above structured process, the organization can make an informed decision on make-or-buy. Although this is a standard process for making the make-or-buy decision, the organizations can have their own varieties.
Make or buy decision is one of the key techniques for management practice. Due to the global outsourcing, make or buy decision making has become popular and frequent.
Since the manufacturing and services industries have been diversified across the globe, there are a number of suppliers offering products and services for a fraction of the original price. This has enhanced the global product and service markets by giving the consumer the eventual advantage.
If you make a make-or-buy decision that can create a high impact, always use a process for doing that. When such a