You have been assigned to do a make-or-buy analysis. What factors will you likely include in your make-or-buy evaluation? (Points : 20)
The make-or-buy decision requires consideration of many factors. Factors that influence the make-or-buy decision include both quantitative factors such as cost and time and qualitative factors such as the suppliers’ trustworthiness and the quality of their products. This includes all relevant factors that cannot be reduced to numbers, such as the experience of the business’ production department and the quality of its management. For example, it might be possible that the business has no experience in producing a particular product and its prior experience in producing other products cannot be applied. The decision to buy creates a project that will be implemented in cooperation with an outside organization that is not entirely within the buyer’s control. An element of uncertainty and risk gets introduced for the buyer if it wants to outsource the project.
The contract binds buyer and seller to one another but does not place one under the other’s managerial control. Sometimes the seller’s economic position may be so powerful, however, that the terms and conditions of the contract are ineffective in protecting the interests of the buyer.
The seller may find that the buyer has specified its needs inadequately or defectively; the seller’s marketing department has oversold its products, services, or capabilities or some faulty communication has transpired between the two parties during contract formation. In any of these cases, performance may be much more demanding than originally contemplated and may even be beyond the seller’s capabilities. Communication breakdowns, misunderstandings, conflicts, and disputes can occur between organizations. Although the contract is intended to provide a remedy to the injured party if the other fails to fulfill its contractual obligations, it is not a guarantee. Legal remedies may be uncertain and, even if attained, may not fully compensate the injured party for the other party’s failure.
The make-or-buy decision can be a critical one for any organization.
References: Garrett, G.A. (2010). World Class Contracting. 5th Edition. CCH Incorporated. pp 24