What Are Some Advantages To A Make/buy Decision?

What are the main reasons for make-or-buy decisions?


  • Cost considerations (less expensive to make the part)
  • Desire to integrate plant operations.
  • Productive use of excess plant capacity to help absorb fixed overhead (using existing idle capacity)
  • Need to exert direct control over production and/or quality.
  • Better quality control.

What are the advantages of purchase?

Below are 5 key benefits that effective buying can deliver:

  • 1 – Reduced price or total cost.
  • 2 – Securing greater value from the supplier or the supply base.
  • 3 – Reduced risk.
  • 4 – Innovation.
  • 5 – Improved internal effectiveness.

What are the benefits of planned purchasing decisions?

Such a process can yield enormous benefits for buyers, including reduced inventory levels, faster time to market, significant cost savings, and reduced development costs.

What are the 4 primary factors to evaluate in make-or-buy decisions?

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.
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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.

How do you evaluate make-or-buy decisions?

What Is a Make-or-Buy Decision?

  1. A make-or-buy decision is an act of choosing between manufacturing a product in-house or purchasing it from an external supplier.
  2. 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 are the 4 goals of purchasing?

There are four major goals of purchasing: maintain the right supply of products and services, maintain the quality standards of the operation, minimize the amount of money the operation spends, and stay competitive with similar operations.

What are the five objectives of purchasing?

Here are the top objectives of most business’s purchasing departments.

  1. Lower costs. This is by far the primary function of the purchasing department.
  2. Reduce risk and ensure the security of supply.
  3. Manage relationships.
  4. Improve quality.
  5. Pursue innovation.
  6. Leverage technology.

What are four reasons why purchasing is important?

Helpful for four reasons:

  • It helps you to spot business or personal opportunities, and it gives you warning of significant threats.
  • It reveals the direction of change within your business environment.
  • It helps you avoid starting projects that are likely to fail, for reasons beyond your control.

What are objective of purchasing?

The specific objectives of purchasing are: To pay reasonably low prices for the best values obtainable, negotiating and executing all company commitments. ADVERTISEMENTS: 2. To keep inventories as low as is consistent with maintaining production.

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What are the disadvantages of buying an existing business?

Disadvantages of buying a business

  • The business might need major improvements to old plant and equipment.
  • You often need to invest a large amount up front, and will also have to budget for professional fees for solicitors and accountants.
  • The business may be poorly located or badly managed, with low staff morale.

What is the purchasing strategy?

A purchasing strategy defines how your company buys things. How your company buys things can include budgets by department, purchase approval methodology, and more. By implementing requirements and processes around purchases, you may lower costs and avoid most common money leaks in the relative short term.

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.

Which factors affect the make buy or lease decision?

To evaluate whether or not you’re getting a good deal, focus on the four factors that determine how much money you will end up spending, says Reed. Those factors are the monthly payments, the length of the lease, the down payment, and the mileage restrictions on the lease contract.

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.

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