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Make vs. Buy
Equipment Selection

Process Planning
Process Planning converts designs into
workable instructions for production. It
decides things such as which
components will be made in-house and
which will be purchased from suppliers. It
also includes other considerations such
as process selection, equipment
selection, and documentation of the
specifications for manufacture and

Make vs. Buy

Quantitative criteria: Cost related to
Qualitative criteria:
(I) Capacity utilization, retention of skilled HR,
etc. Rule of thumb: parts with unstable
demand are better outsourced.
(ii) Quality issues in key components (ex. Carrier)
(iii) Speed as a competitive advantage (e.g. Dell
or FEDEX, DHL, etc.)
(iv) Protecting Proprietary Technology (ex. Coke
formula, or Toyota engine)

Equipment Selection
Some equipment purchase issues that
need to be considered by decision makers:
1. Price offered by vendors is usually not
the actual cost. Many hidden costs are not
reflected in quotation. (ex. Cost of
accessories, spares, installation charges,
commissioning charges, training,
maintenance, etc. can be a significant % of
the equipment cost). Calculations without
these will give misleading results.

2. Operating Costs: The annual cost of operating a
machine includes direct labor, indirect labor, power &
other utilities, supplies, tooling, lubricating fluids,
taxes, insurance, and maintenance, operator
training, salaries, etc. At times items such as the cost
input of energy or maintenance are underestimated,
which leads to wrong decision based on the initial
purchase price only (ex. CNG Station). The way to
tackle this is by step-by-step analysis of how the
machine will be operated, started, stopped, loaded,
unloaded, changed over to produce another product,
maintained, repaired, cleaned, speeded up, slowed
down, and what other resources (i.e. labor, material,
other equipment) will be needed at each step. In
other words Operations Research.

3. Scalability: New equipment should have
the ability to easily expand capacity when
the product demand starts rising in the
market. Newer manufacturing technology
are being brought about for improvements
in product quality, decrease in production
costs, more rapid or dependable delivery, all
aimed at increased revenues. The
equipment needs to be scalable in order to
easily add production capacity and to adopt
minor technology changes when required.

4. Competitive Necessity: As existing
equipment ages, it may become slower, less
reliable, and even obsolete. The decision to
replace old equipment with state-of-the art
equipment depends in large measure on the
competitive environment. If your competitor
invests in new technology and improves
quality , cost, or flexibility, while you do not,
it may result in your loosing market share to
your competitor.