A Make-or-Buy Decision at Baxter Manufacturing Company

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MGMT408 Week 3 You Decide Transcript
A Make-or-Buy Decision at Baxter Manufacturing Company Scenario Summary Baxter Manufacturing Company (BMC) is a leader in deep-drawn stampings. It has been in business since 1978 as a privately held company. The process for making these stampings is very involved and complex. BMC developed methods for efficiently producing large volumes of stampings while keeping their quality very high. BMC uses state of the art machines to make the stampings and they make all the tooling necessary for those machines. In the years since their founding, many changes have impacted the industry – especially when it comes to computer networks and software. In the 1980s many of BMC's customers went to Just In Time manufacturing which affected BMC production schedules and inventory management. Automotive customers began asking for Electronic Data Interchange (EDI) capabilities around 1992. All of this has affected BMCs Information Technology department. Over the years, BMC has embraced the use of computers, computer technology, and software to enhance their competitive advantage and customer relationships. They have added CAD/CAM capabilities, a homegrown scheduling spreadsheet, and financial applications. A Commercial Off the Shelf (COTS) scheduling package was purchased in 1989 but the implementation was unsuccessful. Another COTS scheduling systems was purchased in 1991 but, again, the software did not match the needs of BMC. A new MIS manager, Don Collins, was hired in 1994 and he led an effort to develop a mini-computer based system to accept EDI orders from customers and allow customer service to create shipping schedules, as well as raw materials tracking, in process inventories, and finished goods inventories. These internally developed systems were so successful that the MIS department was flooded with requests for more systems. Don believes that it will take 2 years to internally develop the manufacturing software systems BMC needs to remain competitive. Lou Moore, Vice President of Manufacturing, thinks a COTS package from Effective Management Systems, Inc. (EMS) is the answer to BMCs manufacturing software needs. Specifically, he recommends the EMS Time Critical Manufacturing package. The software costs $220,000 up front and yearly maintenance contracts are available for 1

$55,000 per year. EMS will allow limited customized changes to the software and the labor for those changes will be billed at $60 per hour. To deal with all the requests for new systems and to prioritize projects a steering committee has been established. The members of the steering committee are President Kyle Baxter, Controller Lou Wilcox, Sue Barkley (Vice President for Customer Relations) and Kyle's sister, and Don Collins. The steering committee is currently discussing the option of in-house development (make) or purchasing the EMS system (buy). Your Role/Assignment Your role is that of Sue Barkley. You will recommend a course of action to your brother, Kyle, in regards to the new manufacturing software system. The obvious choices are do nothing, accept the EMS proposal and start implementation, or take Don Collins advice and create the system in-house. Are there others? Key Players Character #1: Kyle Baxter - President Sue, I have discussed the manufacturing software issue with Lucas and Don. I wanted to find out from Lucas why he feels so strongly about using EMS. I asked him the following questions: 1. Given that our MIS group is doing a good job developing new systems why should we purchase an outside system instead of building one in-house? 2. Why do you think we will be successful using an outside vendor when we were unsuccessful on two previous tries? Since Don is convinced we need to do this in-house I asked him to tell me: 1. His estimate of the time and cost to develop an in-house system. 2. His major objections to purchasing a system from EMS. I informed him of Lucas' view that EMS can install the system in...
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