Make or Buy Decision

Topics: Decision making Pages: 3 (900 words) Published: December 10, 2012
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. 'Make-Or-Buy Decision'

Factors that may influence a firm's decision to buy a part rather than produce it internally include lack of in-house expertise, small volume requirements, desire for multiple sourcing, and the fact that the item may not be critical to its strategy. Similarly, factors that may tilt a firm towards making an item in-house include existing idle production capacity, better quality control or proprietary technology that needs to be protected.

Are you outsourcing enough? This was one of the main questions asked by management consultants during the outsourcing boom. Outsourcing was viewed as one of the best ways of getting things done for a fraction of the original cost. Outsourcing is closely related to make or buy decision. The corporations made decisions on what to make internally and what to buy from outside in order to maximize the profit margins. As a result of this, the organizational functions were divided into segments and some of those functions were outsourced to expert companies who can do the same job for much less cost. Make or buy decision is always a valid concept in business. No organization should attempt to make something by their own, when they stand the opportunity to buy the same for much less price. This is why most of the electronic items manufactured and software systems developed in the...
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