MAKE OR BUY

DECISION

BY
NITHIN DUGAR
07-BU-034
 INTRODUCTION
 The make-or-buy decision is the act of making a
strategic choice between producing an item
internally (in-house) or buying it externally (from
an outside supplier).
 Make-or-buy decisions usually arise when a firm
that has developed a product or part—or
significantly modified a product or part—is
having trouble with current suppliers, or has
diminishing capacity or changing demand
 DECISIVE THOUGHT ON MAKE OR BUY
DECISION FACTORS
MAKE DECISI0N
• Cost considerations
• Desire to integrate
plant operations
• Better quality control
• Unreliable suppliers
• Quantity too small to
interest a supplier
• No competent suppliers
• Need to exert direct
control over production
and/or quality
BUY DECISION
• Lack of expertise
• Small-volume
requirements
• Indirect managerial
control considerations
• Brand preference
• Item not essential to
the firm's strategy
• Suppliers' research
and specialized know-
how exceeds that of
the buyer
 ADVANTAGES
MAKE DECISION BUY DECISION
 It supports organizational  the rapid replacement of
continuity by allowing personnel, particularly
junior-level managers to when you need to fill
learn the business from senior-level leadership
more senior-level positions just taken root .
executives.  Buy Strategy is that it
 tacit knowledge has can help you build your
been shown to play a vital internal bench strength
role in what has been while simultaneously
termed "practical hamstringing your
intelligence" competitors.
 DIS- ADVANTAGES
MAKE DECISION
 If you are just launching your
internal development,
assessment and succession
efforts, be willing to accept the
fact that that you are in for a
multiyear commitment that will
take a few years to begin to
show returns.
 Companies that become
heavily reliant on the Make
Strategy can fall into the trap of
becoming excessively insular.
 Simply because it failed to
periodically compare its
performers against those of
outside players.
BUY DECISION
 The Buy Strategy can prove
incredibly costly, since the current
market value for top-notch leaders
may be quite high when compared
to the compensation currently
being paid to those incumbents
who have slowly worked their way
up the internal salary escalator.
 The Buy Strategy can also prove
to be very disruptive to an
organization if it takes the form of
the rapid, large-scale importing of
outside talent.
 It typically requires organizations
to accept a higher level of risk for
their leadership staffing decisions.
MAKE OR BUY DECISION PROCESS
 CONCLUSION
 The component or part manufacture could be a specialist in that
particular product. He may produce in large number and will be able
to make the product at much lower price than if one had in-house
production unit as it would generally be running far below capacity.

 Being a specialist, he may generally have the tendency to update his

technology. Investments in latest technology would also be possible
for him in view of the good returns of investments.

 If most of the items are to be made in-house, there will be problems

of inadequate managerial attention. This would affect quality
assurance.

 Ancillary units are set up by the main company, sometimes as joint

sector companies, quite often the main plant.

 Excellent inventory reduction is possible as an organization can buy

its exact requirements, just in time can be practiced.