Make or buy decisions

Make or buy decisions addressing what you will make in-house and what will be purchased... 

Once the make or buy decision has been made, control of any purchasing activity follows a common series of activities, which are illustrated in Figure 6.2. There are four key processes in the procurement cycle for which you should prepare procedures ... 

One kind of substitution between market inputs is what might be called the "make or buy" decision. Depending upon local conditions, a firm may find it profitable to buy untreated water for its boilers and do its own treatment, or to buy treated water from a utility. Similarly, a firm may buy all of its cooling water requirements from a utility, or it may recirculate... 

Make or buy decision Add on cost per instrument Shared system Outside consultants... 

As argued in Chapter 2.1.2 this work focuses on production network design. Demand is assumed to be independent of production network design decisions and the cost structure achieved. Also, unlimited quantities of raw materials are assumed to be available. An extensions to include make-or-buy decisions (and possibly vendor selection) is provided to accommodate application cases where sourcing decisions have to be included. 

The major product flow variables and cost parameters associated with the material flows throughout the production network are also shown in Figure 20. Based on the assumption that a supplier with lowest landed costs is selected outside the model per raw material and site, raw material flows are not modeled explicitly. Supplier selection could however also be included in the model analogous to the extension to include make-or-buy decisions for intermediate products (cf. Chap. 3.4.3). 

The basic model presented in Chapter 3.4.2 distinguishes between internally manufactured intermediates and externally procured raw materials without considering make or buy options for intermediates. For some application cases it might however be required to include make or buy - decisions in the network design model. The decision can be made either for the entire production network or individually for each site. In order to incorporate make or buy - decisions (and possibly vendor selection), suppliers have to be modeled as an additional network node. Table 11 contains the additional indices, parameters and decision variables required to implement a make or buy formulation for intermediates. 

Increasing the lead of customer orientation and flexibility. Although there have been great changes in terms of mindsets and behaviors and customer orientation has over the years become more than just a phrase, service providers still have to make headway. Far too often a one-size-fits-all approach is followed that neglects the different development stages and key factors of success of different customer businesses. Commodity and specialty chemicals businesses face different key factors of success and apply different criteria when defining which services they need and where to get them from, and hence will arrive at different make or buy decisions ... 

When you get involved in a make or buy decision, be careful not to jump to a quick decision but look at the reasons to go either way listed above and then consider the risks involved. If you do this you will end up with the best decision and your company should benefit from yorrr choice. Make or buy decisions involve a lot of different consideratiorrs depending on the business or product and they must be considered very carefully to get the best results. 

How does the make or buy decision fit into supply chain management ... 

The enterprise performs economic analysis of design alternatives to support make-or-buy decisions. This analysis should address whether it is more cost effective for the enterprise to produce the design element vs. 

Performing make-or-buy decisions to determine functions or processes that might be outsourced or not, or brought inside or not... 

The second path will also characterize the case of a customer seeking to consolidate its supplier base and outsource some of its own operations. In this case, the customer will seek fewer partners offering a broader range of services. A good example is a manufacturer looking to distributors to supply an increased share of its material requirements. The company will evaluate its own costs as a benchmark for make-or-buy decisions on specific services. It will also use its cost information to design the package of services needed from selected partners. 

Following upon the investigation of the concept of modularization, this section is concerned with outsourcing, which is a self-evident consequence of the modularization make-or-buy decision. 

Make-Or-Buy Decision Per Module and the Vertical Range of Manufacture... 

The following corrective actions are applicable whenever a gap is identified concerning the make-or-buy decision of a module. 

Lyons (1996) gives testable hypotheses connected to TCE and examines empirical relevance. As a conclusion of his paper, he states ... the formal law of contract is only limited relevance for many on-going business relationships, where reputation is a powerful enforcement mechanism . However, he encourages more empirical work ...to distinguish the roles of expected future trade and social norms as forces supporting reputation. (Lyons, 1996 49). The vertical integration, or make-or-buy, decision has been the most extensively studied question in the empirical transaction cost literature (Shelanski and Klein, 1995 Crocker and Masten, 1996). 

The planning and procurement cycle covers short- and longer-term requirements. The demand of the product and its components (biU of materials) are compared with the inventory and capacity and the replenishment requiranents are planned. Planners will decide what to buy and what to make. This make or buy decision process also applies to a service organization leading to either in-house or outsourced services. 

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