Question

Consider the make-or-buy decision. Give three examples of situations which a business should make rather than buy. Give three examples of situations in which a business should buy, rather than make.

Answer 1

Make-or-buy Decision is a strategic choice between producing an item internally or buying it externally. Make or buy decision is very complex and time consuming and also effect different levels of the organisation.

Situations which a business should make rather than buy:

1.COST ANALYSIS

Costs to make a product include material cost, labour cost, interests and taxes and inventory carrying cost, etc... If these costs are less as compared to the costs to buy a product. then, we have to go with make decision.

2.AVAILABILITY OF MANPOWER

If a company have skilled and Competent manpower. then we have to go with make decision.

3.NATURE OF BUSINESS

If the unit is production oriented. then we have to go with make decision

Situations which a business should buy rather than make :

1.COST ANALYSIS

Costs to buy a product include purchase price, Transportation cost, procurement cost,etc... If these costs are less as compared to the costs to make a product. then, we have to go with buy decision.

2.AVAILABILITY OF SUPPLIERS

If a we have Competent Suppliers. then we have to go with buy decision.

3.NATURE OF BUSINESS

If the unit is service oriented. then we have to go with buy decision.because production process is less.