Challenges faced with Make-or-Buy decisions

577 Words2 Pages
bulb-icon

Recommended: Challenges of making or buying decisions

Almost all manufacturing firms are faced with difficult challenges while attempting to improve efficiency and increase profits. One of the largest challenges faced is the Make-or-Buy decision, pertaining to manufacturing of a product. The analysts and decision makers must weigh the benefits of keeping a product entirely in-house for production. Additionally, a decision can be made to purchase parts of an overall product, over making the parts in-house. These decisions can drastically impact the profitability of a project or product, which in turn can affect the margin of the end good. The make-or-buy decision is a difficult decision to make for most companies. The make-or-buy decision is often made solely on a cost basis, without real justification to processing technique changes, technology improvements, or strategic implications (Canez, Platts & Probert, 2000). Companies must make this decision due to the limited amount of resources, technology, and manufacturing techniques that are available to the company at the time of evaluation. Often, a company will decide to purchase a product if it does not meet one of the evaluation criteria, such as not having adequate staffing resources, as long as the cost structure is attractive (Canez, Platts & Probert, 2000). Although cost is a large factor, it is often impractical for a company to make such decisions based upon only a few factors. The overall decision must be made with adequate research and diligence. Another challenge of the make-or-buy decision is the amount of knowledge required to address the needs of the organization. An organization must define all possible alternatives and any tradeoffs that may occur from making the decision (Moses & Pär Åhlström, 2008). To as... ... middle of paper ... ... framework is in place to achieve the necessary information, management can make an educated decision to make-or-buy a product part or service section. These decisions are crucial for organizations to remain competitive in today’s market. Works Cited Canez, L. E., Platts, K. W., & Probert, D. R. (2000). Developing a framework for make-or-buy decisions. International Journal of Operations & Production Management, 20(11), 1313-1330. doi: http://dx.doi.org/10.1108/01443570010348271 Moses, A., & Pär Åhlström. (2008). Dimensions of change in make or buy decision processes. Strategic Outsourcing: An International Journal, 1(3), 230-251. doi:http://dx.doi.org/10.1108/17538290810915290 Nikolarakos, C., & Georgopoulos, N. (2001). Sourcing: Issues to be considered for the make-or-buy decisions. Operational Research, 1(2), 161-179. doi:http://dx.doi.org/10.1007/BF02936292

Show More
Related

  • Swot Analysis Of Best Buy Company

    1056 Words  | 3 Pages

    The decision making process in best buy corporation is decentralized. The decision-making authority is well distributed between employees. Employees, family members and other people are involved in important decisions that lead to the success of the company. The employees are well aware of people, of what happens in the organization, and are familiar with the geographical conditions of the company.

    Read More

  • The Pros And Cons Of Contracting Out?

    626 Words  | 2 Pages

    The proponents of contracting out assume that outsourcing in the IT sector is useful in strategic, technological, and economic reasons. (Gonzalez, Gasco & Llopis, 2009) They believe that outsourcing enables an organization to get the same or better services with lower cost. First, strategic advantages enable organizations to refocus on strategic and core functions, and provide flexibility for organizations because organizations need not to concern about routine tasks (Gonzalez, Gasco & Llopis, 2009). OPPGA (1998) also support these strategic advantages. It asserts that outsourcing can provide organizations with great flexibility in personnel and facilities in short-term projects. Outsourcing providers can provide better services for clients since they usually use new and developed technologies. Second, proponents think that outsourcing gives organizations opportunities to access to technology and reduce technological obsolescence without large investments (Gonzalez, Gasco & Llopis, 2009). Lastly, Pros assume that contracting out can save s...

    Read More

  • Ethics Of Outsourcing

    1599 Words  | 4 Pages

    Outsourcing has been viewed as a strategic decision rather than as an ethical dilemma. Robertson, Lamin & Livanis state that there are ethical considerations that are largely overlooked in evaluations of outsourcing decisions (2010, pg. 185). When reviewing an ethical dilemma, there must be a framework for which a decision can be made. “Utilitarianism

    Read More

  • Michael E. Porter's Five Forces In Pepsi

    1756 Words  | 4 Pages

    In such situations, the buying industry often faces a high pressure on margins from their suppliers. The relationship to powerful suppliers can potentially reduce strategic options for the organization.

    Read More

  • Cole's Supermarkets Framework

    1286 Words  | 3 Pages

    A strong framework or the burly platform can result into the smooth working of an organization. Many different factors need to work in coordination to make the platform strong and these factors can be classified as HR, structure, political, and many other aspects too. The best example which we are considering here is of “Coles Supermarkets” which is a very famous chain of supermarket and owned by the Wesfarmers in Australia. It was founded in the year 1914 in Melbourne by G. Coles. Throughout Australia, it operates nearly 775 supermarkets. This business reports shown below primarily reflects the Bolman’s and Deal Four Framework, by the help of which the internal aspects associated with the organization may get clear in an easy way.

    Read More

  • Process Costing System

    1088 Words  | 3 Pages

    Since more than 40 years, Toyota Company was thinking how to develop the traditional process costing system and the production system. Some of the companies believe that the increasing of the production is a big profit, while Toyota proved the opposite. The more you increase the products out of the need of the market, the more losses you are going to gain. This kin...

    Read More

  • Toyota Supply Chain

    2794 Words  | 6 Pages

    The business environment is increasingly becoming competitive and challenging. In the recent past, manufacturers have found themselves facing the threat of dwindling profit margins due to unfortunate global events such as the 2007 global financial crisis and the on going Europe economic crisis. The need to improve operation efficiency so as to ensure current and future investment yield the highest rate of return has therefore become extremely important. Manufacturers are now actively engaged in, managing their costs, Research and Development, adopting best procurement strategies, among other Actions. While such actions might eventually lead to positive results, additional business value can be achieved through proper management of the supply chain (Waymer, Ivanaj & Mussa 2009; Krivda 2004).

    Read More

  • Nestle and Vertical Supply Chain

    904 Words  | 2 Pages

    Since mid-90, technology changed procedures for evaluating supplier’s relationships. Before technology, Suppliers relationships used to be an isolated activity disconnected from others companies’ activities highly influenced by conflict of interest. But when technology started to provide accurate data, companies begin the focus on inventory management activities increasing the importance of procurements departments’ evaluation as a way to reduce supply chain cost. With data, procurement can evaluate suppliers and their benefits for the company. In today business environment, the company dilemma is evaluating if the supply chain should be vertical, full outsourced of mix, considering industry maturity impact and price competition (Chopra & Meindl, 2007; Slack & Lewis, 2011).

    Read More

  • An Overview of Business Strategies

    2251 Words  | 5 Pages

    The second way is to achieve low direct and indirect operating costs is gained by offering high volumes of standard products and offering basic no-frills products. Production costs are kept low by using less parts and using standard components. Limiting the number of models produced to ensure larger producti...

    Read More

  • The Purchasing Process of Woolworths

    631 Words  | 2 Pages

    ... management ande-procurement: creating value added in the supply chain”,Industrial Marketing Management, Vol. 33 No. 2, pp. 219-26.

    Read More

  • Business Decision Making

    783 Words  | 2 Pages

    Thinking critically and making decisions are important parts of today’s business environment. It is important to understand how the decision making process works and the steps involved. The nine steps of the decision making process are: identifying the problem, defining criteria, setting goals and objectives, evaluating the effect of the problem, identifying the causes of the problem, framing alternatives, evaluating impacts of the alternatives, making the decision, implementing the decision, and measuring the impacts. (Decision, 2007.) By using various methods and tools to assist in making important business decisions an individual can ensure the decisions they make will be as successful as possible. In this paper it will be examined how the decision making process can be followed using various tools and techniques to make successful business decisions by using these same tools and techniques during a thinking critically business scenario. The paper will also discuss how different tools and techniques could have been used to make different, yet still successful decisions.

    Read More

  • Differential Analysis In Business

    1360 Words  | 3 Pages

    Making business decisions involves choosing between alternative courses of action. Many factors affect business decisions, yet analysis typically focuses on finding the alternative that offers the highest return on investment or the greatest reduction in costs. Some decisions are based on little more than an intuitive understanding of the situation because available information is too limited to allow a more systematic analysis. In other cases, intangible factors such as convenience, prestige, and environmental considerations are more important than strictly quantitative factors. In all situations, managers can reach a sounder decision if they identify the consequences of alternative choices in financial terms. This unit

    Read More

  • Organizational Life Cycle

    1245 Words  | 3 Pages

    Managers should be ready to teach the importance of decision-making skills and reinforcing organizational policy. Avoiding hasty, careless decisions, which can have devastating results on the manager's unit or the entire organization. Decisions made with forethought, using the many managerial tools available will lead to better and more profitable operatio...

    Read More

  • The Importance Of Procurement Performance

    1546 Words  | 4 Pages

    (2014) deduced that procurement performance can be assessed by focusing ondelivery,flexibility, quality, cost and technology. Optimal performance attainment is dependent onhow current suppliers`relationships aremanaged so asto ensure constant availability of needed quality supplies at the organization. This will ensure that sourced materials are indeed procured at the right costand atthe right time. Procurement performancestrives toenable improvements in the procurement process at the organizationso as to improve on qualitydelivery of firm products and servicesatleast possible time and

    Read More

  • What Is Managerial Economics?

    1284 Words  | 3 Pages

    Therefore, to achieve this objective, managers have to make choices in decision-making, which is the process of selecting a course of action from two or more alternatives (Weihrich & Koontz; 1994, 199). A sound decision making requires extensive knowledge of economic theory and the tools of economic analysis, that are directly related in the process of decision-making. Since managerial economics is concerned with such economic theories and tools of analysis, it is very relevant to the managerial decision-making process.

    Read More

More about Challenges faced with Make-or-Buy decisions

Open Document