6 terms

Make or Buy (ch5)

STUDY
PLAY
Make or Buy Decisions
Make vs Buy (new product)
Insource vs. Outsource (change what you're currently doing)
Why change a make or buy decision?
Changing conditions - new tech, new suppliers, trade-offs are different. Make/Buy decisions should be evaluated periodically
Reasons to Make instead of Buy
Quantities too small/no supplier interest
Quality reqs. are too exacting/special
Greater assurance of supply
Avoid supply dependency
Closer coordination of supply/demand
Preserve Tech. Secrets
Potentially Lower Costs
Take Advantage of unused capacity
Keep capacity usage high/outsource the rest
Competitive, political, social, enviro factors
Market potential for product service expanding rapidly
Forecasts of future shortages in the market or rising prices
Reasons to Buy instead of Make
Lack of managerial or tech exp.
Excess production capacity
Customer pref. for particular brand
Challenges of maintaining technological leadership for noncore
Outsourcing is difficult to reverse
cost accuracy
Flexibility
Insufficient volume to justify in-house
Forecast show great demand and or tech. uncertainty
available high-capability supplier
buying outside may open up markets
bring to market faster
superior supply management expertise
Risk of Outsourcing
Loss of Control
High Exit Barriers
Exposure to supplier risk
unexpected costs
conversion costs
attention required by senior management
poor supplier management
Purchasings role in outsourcing
PRovide comprehensive, competitive process
Identifying opportuinities to outsource
Aiding in selection of sources
Identifying potential relationship issues
Developing and negotiating contract
Ongoing monitoring and managing relationship
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