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Make-or-buy decisions involve companies deciding whether to produce something themselves or outsource it. It is related to competitive advantage and involves considering factors such as trade secrets, order size, and confidence in the product being produced.
A make-or-buy decision is a concept that relates to the types of business decisions that various companies must make regarding the issue of producing something themselves. This concept is closely related to that of competitive advantage, which suggests that it is a form of strategic advantage for companies to focus on items that they are best suited to produce. For example, a company in Florida, USA, would be comparatively positioned to produce orange juice because of its proximity to mass-produced oranges, as well as the fact that it has developed competent methods for extracting and producing the product over time. years. Assuming that a company located in an area that does not have the same advantages develops a unique recipe for making orange juice and decides to produce orange juice, it can outsource the production of the juice to a company in Florida, while focusing on the packaging and marketing of the finished product.
In this case, the company would have applied the make-or-buy decision to its manufacturing or outsourcing dilemma. More directly, the make-or-buy concept relates to items such as products that may have been developed by the company in question. For example, a company specializing in the production of airplane parts may develop a new type of part that requires a specialized type of production process that may prove to be beyond the easy reach of the developing company. In this case, the company may weigh its options as part of a make-or-buy decision. The company may decide to outsource, as it would be cheaper to produce the part at another company that specializes in mass producing the part more efficiently.
To determine whether the make-or-buy decision would apply during cases related to the production of new products, the company would have to decide whether the product in question is one that entails the protection of a trade secret; in that case, the company would produce it itself, regardless of any cost. Another factor that could affect the decision to outsource or produce yourself would be order size. If the order size is too small, it may be very difficult or exorbitant for the company to find another company to produce the product. A company may also decide to get involved in the production of the product if it does not have much confidence in the product being produced by another company, even if it is cheaper to outsource the production.
Asset Smart.
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