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Management
MAKE OR BUY DECISION
Make or Buy is a strategic decision of a manufacturing organization.
The decision of Buying a material or component instead of
making it, is preferred when,
1. Cost of manufacturing is more than the Cost of bought
out item
2. Return on Investment to organize manufacturing the item
is not attractive
3. The requisite skilled manpower for such manufacturing is
not available in the organization
4. The demand of the item is of less quantity or
seasonal or irregular or occasional.
5. The item of requisite quality is abundantly and
conveniently available in the market, having no difficulty
in transport
6. The (manufacturing) process is patented and is difficult
to be available.
7. Additional managerial manpower to take up such
manufacturing is not available in the organization
RISK INVOLVED IN OUT-SOURCING
1. Lack of Control on :
i) Cost of Product : due to lack of control on rise of price and
procurement cost ,even in negotiation stage.
ii) Committed Delivery-Time of Product : due to the uncertainty or
non-commitment of suppliers on delivery
iii) On Quality of Product : due to the non-compliance to the
required quality (ie quality failure) of supplied materials / services
iv) Reliability of Product : probability of performance-failure of the
product due to the failure of any purchased item or material
v) After-Sales Services : due to lack of expertise, knowledge,
technical assistance, spare-parts etc in the supplier side for
the purchased items.
3. Loss of Confidentiality : Out-sourcing often leads to off-loading of
confidential data, design, sensitive part of know-how, etc.
4. Lack of Flexibility to any required modifications as per the customer-
need.
5. Ineffective Customer Service Management : External material / service
provider may not be so sensitive up to the need of the end-users of the
product.
Functions of Purchasing Department
I. Pre-purchasing Functions
1. Review and Assess the demand (place, time, type, quantity and quality of
material requirement)
2. Make-or-Buy decision considering the risks of out-sourcing
3. Standardization of Material & components.
4. Finalizing the detail quality-specifications of each item to be procured
5. Assess the most suitable time and most economic and suitable Order-
quantity, for order placement
6. Determination of Inventory Levels (including Ordering level)
7. Market Analysis (availability of materials)
8. Price Forecasting
9. Making Material-Sourcing strategy
10. Vendor Development and Vendor Rating / Evaluation