Why Manufacture Or Outsource? Essay

“Make” or to “Buy” will influence the efficiencies of operation in a positive manner. The main reason behind it is that, the make or buy decisions are helpful to sustain business practices, and to improve efficiency in operations in an effective manner.

We should consider this trade-off from ECCO case, between in-house production and outsourcing when faced with cost uncertainty and competition with a rival manufacturer in a differentiated goods market. When the management decides on selecting organizational forms, technological uncertainty on production activities often ensues. Thus, a manufacturer faces uncertainty when choosing between in-house production and outsourcing. Moreover, because almost all modern firms are in a competitive position, they have to choose organizational forms and take the

Second, always make sure there is an alternative source. As I mentioned before, this is much easier with single source procurement (but not sole source), since other similar suppliers could be able to supply similar products with more or less that same quality as the previous suppliers.

Explain what should be considered when selecting a production method to suit a given product

The budget analysis shows that the labor hours of the firm are higher than the budgeted amount. As such, the firm needs to evaluate the cost benefit analysis of making or buying their products. To make this decision, various factors need to be considered. Before making the decision, Peyton needs to evaluate the marginal costs and revenue of making versus buying the products. The firm should take the option which provides the highest marginal profit which is the

Each alternative must be clearly identified. The key advantages and disadvantages of each alternative must be listed and thoroughly discussed. The compare and contrast (pro and con) assessments of each alternative must be done against the decision criteria previously listed and discussed. A matrix format may be used in order to more accurately compare each of the alternatives. If multiple decision criteria are being used, weighting of each of the criteria must be applied. It is also important to look at the short and long term results of each alternative, and to assess the best, the worst, and the most likely outcomes for each alternative. Qualitative and quantitative analysis will be required. It will also be necessary for the student to use the various supply chain management tools and techniques learned throughout the certificate program to determine those possible outcomes.

Since material cost is one of the key cost drivers for the production of the units, it is best to take

However, as a new member with a new product, electronic product in North American market, the reputation is also an important attribute. Especially, quick delivery time is a key attribute for this company, due to the demand of quick delivery in all markets. Moreover, the manufacturing process of the new product, electronic product, on which our company will definitely focus, has a lot demands. Such as, technology, innovation and quick delivery time even the ability to make the product be the first one appearing in the market (other company, which is developing the same product, may become our competitive opponents). Especially, technology is predicted to play the most important role in the manufacturing process. On the other hand, the traditional cost system has a lot of limitations. Traditional costing system focuses on the cost reduction and the efficiency, particular the products with relatively few standardized components; Clifton, however, produces a wide range of airplane components. In addition, nonfinancial aspects of

Outsourcing is when a company purchases products or services from an outside supplier rather than performing the same work within its own facilities, in order to cut costs. In other words, outsourcing is an organization's contractual relationship with a specialized outside service provider for work traditionally done internally by that organization. The decision to outsource is a major strategic one for most companies because it involves weighing the potential cost saving against the consequences of a loss in control over the product or service. Some common examples of outsourcing include manufacturing of components, computer programming services, tax compliance and other accounting functions, as well as payroll and other

Q1. Based on the 2004 statement of profit and loss data (Exhibits 1 and 2), do you agree with Water’s decision to keep product 103?

Chang and Ive (2000) examine the “make or buy” decision in mathematical way in the illustration below. The research shows that in order to make decision or vertical integration over “make or buy decision” the firm should identify average TC considering the market price to produce such goods and service, then decide which organizational form is the best addressing the issue.

The decision to buy them from other companies already made is called outsourcing. This can provide needed jobs for the community and inspires a sense of belonging in that community also. This decision is also based on direct materials, direct labor, variable costs, and fixed costs, but this time they are being used to compare one venture with another to see which one brings in more revenue. All the costs that it takes to make the product are added together in one column. All the costs that are needed to buy the item are added in another column. Once this is established, the opportunity costs must be evaluated. These are the potential benefits that could come from a side venture of using the production space for something else while the components for the first venture are being bought. These costs are added to the ‘make’ column. Often this is the make or break point of the deal. Also, when choosing to buy, make sure that a reliable company is chosen. They have to be able to keep up with the demand; otherwise the company will end up with not enough parts at a crucial moment. This decision, to make or buy, can have huge effects on the community that the business belongs to, as well as, other surrounding communities. They will benefit from jobs, supplies, and the well-being that comes from being part of a well knit group. Being in a stable environment is very important when raising families and having a steady income helps to provide

One will note that six of the costs to consider are incremental. By definition, incremental costs would not be incurred if the part were purchased from an outside source. If a firm does not currently have the capacity to make the part, incremental costs will include variable costs plus the full portion of fixed overhead allocable to the part 's manufacture. If the firm has excess capacity that can be used to produce the part in question, only the variable overhead caused by production of the parts are considered incremental. That is, fixed costs, under conditions of sufficient idle capacity, are not incremental and should not be considered as part of the cost to make the part.

efficient supply chain. There are two main factors that go towards deciding the actual point of

The purpose of this paper is to answer a few important questions: Why do companies allocate costs? How do companies allocate costs? And how this cost allocation can affect the decision making of the company. It is important for the companies to find the proper method to allocate the costs. Cost allocation is an important issue in many companies because many of the costs associated with designing, producing and distributing products and services are not easily identified with the products and services that are created. It would have been easier for companies to allocate cost if costs were directly traceable with the products and the cost allocation would have been minor issue for the company. The decision-making