A make-or-buy decision is an act of choosing between manufacturing a product in-house or purchasing it from an external supplier . Make-or-buy decisions, like outsourcing decisions, speak to a comparison of the costs and advantages of producing in-house versus buying it elsewhere.
What is make buy decision explain with examples?
A Make or Buy Decision is a decision made to either manufacture a product/ service in house or buy it from outside suppliers (outsourcing) based on cost-benefit analysis .
What do you mean by make-or-buy decision in management accounting?
A make-or-buy decision is an act of choosing between manufacturing a product in-house or purchasing it from an external supplier . Make-or-buy decisions, like outsourcing decisions, speak to a comparison of the costs and advantages of producing in-house versus buying it elsewhere.
When to use make-or-buy decision?
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. Make-or-buy analysis is conducted at the strategic and operational level.
What are the three pillars of make-or-buy decision?
This report explores the dynamics of make-or-buy decisions and presents a framework to help companies make the right decisions. The framework is built on three key pillars — business strategy, risks, and economic factors .
What are the disadvantages of make-or-buy decision?
- Not satisfying quality of the goods.
- Level of costs.
- Too little space to expand company activity.
- Unstable demand and sales fluctuations.
- Disappointing cooperation with suppliers.
- Widening the range of products offered.
What are the criteria for buy decision?
- Finished product can be made cheaply by the firm than that by the outside suppliers.
- Finished product only is manufactured by limited number of outside firms, which are unable to meet the demand.
- The part has an importance for the firm, and requires extremely close quality control.
What are the five stages of the buyer decision process?
- Need Recognition. The buying decision process begins when a consumer realizes they have a need. ...
- Information Search. ...
- Option Evaluation. ...
- Purchase Decision. ...
- Post-Purchase Evaluation.
Which cost is associated with buy decision?
The buy decision is associated with only variable cost . Expressing all factors in to money terms carries out a thorough and comparative analysis. Then the decision is to be taken based on which one is more economical, to make or to buy. 2.
What are pricing decisions?
Pricing decisions are the choices businesses make when setting prices for their products or services . ... Companies that make simple pricing decisions often try to increase sales by making small, competitive adjustments such as purchase discounts, volume discounts and purchase allowances.
How you can evaluate a lease or buy decision?
The evaluation procedure for a lease-buy decision can be summarized as follows: ... Compute the net present value of the cash flows generated for the firm by the asset if it is leased . Compare the NPV (buying option) with the NPV (leasing option). The option with the higher NPV is superior and the other should be rejected.
Why might a company make a product in-house rather than buy it?
There are several reasons to manufacture in-house instead of outsourcing production. It gives your company a lot flexibility to alter the product as you produce it . In-house production ensures higher quality control. With production in-house, you can keep your overhead low by avoiding foreign managers.
What are the major trade offs in a make or buy decision?
Dabhilkar (2011) points out that there are trade-offs in ‘make or buy’ decision-making regarding their main reasons ( costs, quality, core activity focus, flexibility, and innovation ) that often conflict and imply that a company cannot have all these reasons when outsourcing an activity.
What are the major functions that must be accomplished in the purchasing process?
- Discover potential suppliers.
- Evaluate potential suppliers.
- Select suppliers.
- Develop suppliers.
- Manager supplier relationships.
What are the relevant costs in a make-or-buy decision?
Relevant costs in make-or-buy decisions include all incremental cash flows . Any cost that does not change as a result of the decision should be ignored such as depreciation and indirect fixed costs.
What is procurement Strategy?
Strategic procurement is an organization-wide process that aims to ensure the timely supply of goods and services in line with the organization’s business goals , while reducing risk within the supply chain. ... Strategic procurement is an activity that requires co-operation from all departments throughout the organization.
