DECISION
BY
NITHIN DUGAR
07-BU-034
INTRODUCTION
The make-or-buy decision is the act of making a
strategic choice between producing an item
internally (in-house) or buying it externally (from
an outside supplier).
Make-or-buy decisions usually arise when a firm
that has developed a product or part—or
significantly modified a product or part—is
having trouble with current suppliers, or has
diminishing capacity or changing demand
DECISIVE THOUGHT ON MAKE OR BUY
DECISION FACTORS
MAKE DECISI0N BUY DECISION
• Cost considerations • Lack of expertise
• Desire to integrate plant • Small-volume
operations requirements
• Better quality control • Indirect managerial
control considerations
• Unreliable suppliers
• Brand preference
• Quantity too small to
• Item not essential to the
interest a supplier firm's strategy
• No competent suppliers • Suppliers' research and
• Need to exert direct specialized know-how
control over production exceeds that of the buyer
and/or quality
ADVANTAGES
MAKE DECISION BUY DECISION
It supports organizational the rapid replacement of
continuity by allowing personnel, particularly
junior-level managers to when you need to fill
learn the business from senior-level leadership
more senior-level positions just taken root .
executives. Buy Strategy is that it
tacit knowledge has can help you build your
been shown to play a vital internal bench strength
role in what has been while simultaneously
termed "practical hamstringing your
intelligence" competitors.
DIS- ADVANTAGES
MAKE DECISION BUY DECISION
If you are just launching your The Buy Strategy can prove
internal development, incredibly costly, since the current
assessment and succession market value for top-notch leaders
efforts, be willing to accept the may be quite high when compared
fact that that you are in for a to the compensation currently
multiyear commitment that will being paid to those incumbents
take a few years to begin to who have slowly worked their way
show returns. up the internal salary escalator.
Companies that become heavily The Buy Strategy can also prove
to be very disruptive to an
reliant on the Make Strategy can organization if it takes the form of
fall into the trap of becoming the rapid, large-scale importing of
excessively insular. outside talent.
Simply because it failed to It typically requires organizations
periodically compare its to accept a higher level of risk for
performers against those of their leadership staffing decisions.
outside players.
MAKE OR BUY DECISION PROCESS
CONCLUSION
The component or part manufacture could be a specialist in that
particular product. He may produce in large number and will be able
to make the product at much lower price than if one had in-house
production unit as it would generally be running far below capacity.