Question

What factors, other than the immediately financially quantifiable, would you consider when making a make-or-buy decision?

Answer 1

Make or Buy decision: Firms produce some or the other products, some companies purchases raw material from other companies and some companies make raw material and other necessary items at their own. Make or buy decision consists of two things, whether to manufacture a product or buy it from supplier.

These factors influence make or buy decision:

1. Size of the company- A big company can take make decision as they have abundance of capital and their consumption is more and there are other elements like plant layout, corporate policy, direct cost, personnel relation etc. Smaller company that has expenditures of few lacs, can take a buy decision rather setting up whole plant and manufacturing.
2. Difficulties in manufacturing- If company is not finding right place to set up the plant and factory for manufacturing and finding difficulties in production then it can go for buying, if company is not finding suppliers and delivery properly then it can go for manufacturing.
3. Profitability- Company does cost and benefit analysis and analyzes opportunity cost also, it calculates and compares the profit on making the products and buying them and goes for the decision that is more profitable.