15.4: Make-or-Buy Decisions Flashcards
What is the make-or-buy decision in a global firm?What is the make-or-buy decision in a global firm?
The make-or-buy decision is a strategic choice determining whether to produce an item in-house or purchase it from an outside supplier. It involves both strategic and operational levels, considering long-term and short-term implications, and influences global supply chains.
What are some reasons for a global firm to make a product in-house?
A firm may produce in-house if the item is critical for success, requires specialized design or production skills, ensures quality control, contains proprietary technology, or strategically fits with the firm’s core competencies.
What factors play into the make-or-buy decision beyond cost and production capacity?
Beyond cost and production capacity, factors include quality control, proprietary technology, supplier limitations, strategic fit, industry globalization drivers, and the potential opportunity costs associated with not utilizing excess production capacity.
Why might a global firm choose to buy a product rather than make it?
A firm might choose to buy if the supplier has specialized expertise, to take advantage of cost efficiencies, to manage inventory strategically, to meet brand preferences (e.g., using Intel microchips), or if the item is nonessential and has little impact on core competencies.
What is the impact of supplier competencies on the make-or-buy decision?
Supplier competencies can lead to a buy decision if they are closer to the production facility or if the supplier has expertise that the firm lacks, especially if only small volumes are produced or if specialized components are required.
How do cost issues and production capacity influence the make-or-buy decision?
Cost issues include acquiring raw materials and components, and all inputs into the production process, along with the costs of finishing the product. Production capacity is an opportunity cost that should be considered if it’s not being fully utilized.
Why is it important to evaluate make and buy decisions separately?
It is important because each decision involves different elements and influences the choice differently. Evaluating them separately ensures that the decision made is the best strategic fit for the firm with the least opportunity cost.
What can the limitations of production capacity lead to in the make-or-buy decision?
Limitations in production capacity can lead to outsourcing parts of production to ensure that a firm can meet its production needs without being hindered by its own capacity constraints.
