FAQ: : When It Comes To Considering A Make-or-buy Decision, What Factors Must Be Considered?

What are the factors to be considered in make-or-buy decision?

Factors Influencing Make or Buy Decision:

  • Volume of Production:
  • Cost Analysis:
  • Utilization of Production Capacity:
  • Integration of Production System:
  • Availability of Manpower:
  • Secrecy or Protection of Patent Right:
  • Fixed Cost:
  • Availability of competent suppliers or vendors.

What is the first step to making a make-or-buy decision?

They proposed a make-or-buy decision process methodology through the following stages: planning, evaluation, internal costs, and performance analysis. Companies can perform their freight distribution in three different ways.

Why is the make-or-buy decision considered strategic?

The common factors that companies consider in a make versus buy decision include proprietary knowledge, capabilities, quality, capacity, labor, volume, timing, and cost. At the strategic level, the decision to make or buy a component directly impacts organizational profit, and the firm’s reputation in their industry.

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What other factors should a project manager consider when formulating a make-or-buy decision?

There are different factors that influence the make-or-buy decision and these include the core abilities of the team or organization, the value delivered by the vendors meeting the needs of the buyer, risks that are associated with the meeting and the internal capability compared with the vendor community.

What are three factors that can be considered in the make-or-buy process?

The decision as to whether to make vs. buy a product is based on a variety of factors, including the cost of either option, whether the product is available from other vendors, the expertise and resources your business has when it comes to manufacturing, and whether you have enough cash in place to make a purchase.

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.

When should a special order be accepted?

A special order generally should be accepted if: A) its revenue exceeds allocated fixed costs, regardless of the variable costs associated with the order.

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 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.

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Which cost help in taking make or buy decision?

Make or buy decision is the production decision made by the company i.e whether to buy the product or to manufacture the product. The cost of buying and manufacturing are both taking into consideration while making the decision. Hence, the cost of production is considered for ‘make or buy’ decision.

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 to consider when buying products?

5 Factors Consumers Consider When Choosing Your Product

  • Package Reusability. Consumers have always wanted more for their money, but modern consumers want environmental responsibility for their money, as well.
  • Product Allure. Make the product look good.
  • Familiarity.
  • Snobocity.
  • Brand Trustworthiness.

What activities should you carry out during a make-or-buy analysis?

The make or buy decision involves whether to manufacture a product in-house or to purchase it from a third party. The outcome of this analysis should be a decision that maximizes the long-term financial outcome for a company.

When opportunity costs exist they are always relevant?

When opportunity costs exist, they are always relevant. When capacity is constrained, relevant costs equal incremental costs plus opportunity costs. If the $20,000 spent to purchase inventory could be invested an earn interest of $500, then the opportunity cost of holding inventory is $20,000.

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