Chapter 5 Flashcards
1
Q
Reasons to Make Instead of Buy
A
- Quantities are too small and/or no supplier is interested
- Quality requirements are too exacting or special processing methods needed
- Greater assurance of supply
- Closer coordination of supply and demand
- Preserve technological secrets
- Lower Cost
- To take advantage of unused capacity
- Keep our capacity utilization high and outsource the rest
- Avoid supply dependency
- Reduce risk
- Competitive, political, social or environmental factors
- Distance from the closest available supplier is too great
- Market potential for the product or service is expanding rapidly
- Forecasts of future shortages in the market or rising prices
2
Q
Reasons to Buy Instead of Make
A
- Lack of managerial or technical experience
- Excess production capacity
- Reduce risk
- Customer preference for a particular brand
- Challenges of maintaining technological leadership for noncore activity
- Outsourcing is difficult to reverse
- Cost accuracy
- Flexibility
- Insufficient volume to justify in-house production
- Forecasts show great demand and/or technological uncertainty
- Availability of a highly capable supplier
- Buying outside may open up markets
- The ability to bring a product or service to market faster
- Superior supply management expertise
3
Q
Risks of Outsourcing
A
- Loss of control
- Higher Exit barriers
- Exposure to supplier risks
- (e.g., financial, commitment to relationship, response time, quality, service)
- Unexpected/unanticipated costs
- Difficulty quantifying economies
- Conversion costs
- Supply restraints
- Attention required by senior management
- Possibility of being tied to obsolete technology
- Concerns with long-term flexibility
4
Q
Purchasing’s Role in Outsourcing
A
- Providing a comprehensive, competitive process
- Identifying opportunities for outsourcing
- Aiding in selection of sources
- Identifying potential relationship issues
- Developing and negotiating the contract
- Ongoing monitoring and management of the relationship
