The Make versus the Buy
Introduction
In the business world, firms may decide either to manufacture the products they need or otherwise buy from an outside supplier. This practice is made based on a decision made by the organization after consideration of cost-benefit analysis. This decision is also referred to as an outsourcing decision, where the firm compares the cost associated with producing the needed goods or services internally, to that of hiring an external supplier. In this context, the organization has to weigh out all the aspects that regard the acquiring and storage of the items, against creating the same products in-house, sometimes which involve the purchase of new equipment and associated storage costs. For this decision to be right and acceptable a quantitative or qualitative analysis needs to be done to ensure that the decision made is advantageous to the company in terms of decision making (Pratama & Rosyidi, 2017, November). This essay presents a discussion on the make versus buy decision based on Firebird Company production.
The Firebird Company has been getting its products from an external producer, thus in recent days has thought on whether this process is cost-beneficial or not. It is from this that the organization would now decide whether to make-or-buy. With many operations around the company with many assemblies and units. The Firebird firm needs to consider all the costs associated with producing the products in-house, mainly in buying and maintain equipment, cost of the premises, raw material cost, cost of fuel and electricity, labor cost, storage cost, shipping cost, and the cost of capital. In this context basing our discussion in the Firebird firm in the purchase of Firebird Electric is decentralized. The organization is set to have six buyers, with responsibilities of obtaining materials. Within this organization, the four buyers are responsible vendors, overseeing the products, two of these are associates specifically, assigned to supply evaluation and incoming quality confirmation.
Various steps must be followed when launching new products. The first step is to establish the requirements. In order to ensure that the entire process there must be a clear plan and organization of the whole operation, the organization needs to keep quality. Some key operations to keep in place include, developmental stages, these include, the design of the product, purchasing, quality assurance and control, materials management, the entire manufacturing process, and engineering. In the production process, the first process involved in manufacture includes the development of housing, a step that involves, gathering all relevant information, drawings design, and evaluation of the cost of constructions. In the contemporary world, the organization seeks to use the new technologies and new input materials across all the components.
Additionally, for quality assurance, various procedures are applied. In this process, the technicians are hired to review the fabrications and eliminate the components that seem to incur the company extra costs. From this step, the reviewers can now search and offer alternative tools that can be used in production, after a following up in a meeting of the organization’s representatives pulled from all the departments a decision is meant on which materials they choose for operation. After this assurance, the manufacturing personnel is informed of the updates, costs, and responsibilities for each stakeholder. The success of the entire production is taken is assure if a continuous flow of information. Firebird then proceeds to define the fixture measurement of the product, aligned with accuracy, ease of use, and cost-efficiency. After consulting with the engineers a trial is run for the product in-house, which is aimed at ensuring a minimal rejection rate. The most important thing that needs to be ensured is that the whole process is smart. The latter mean it should be specific and within a speculated duration.
Following all these procedures the cost of manufacturing these products internally, get so tedious and sometimes much expensive. The cost expenses are incurred in the bid to higher the specialist and time needed in the entire production process when starting from scratch, this referred to as Original Equipment Manufacturer (OEM) (Serrano, Ramírez & Gascó, 2018). For this process to be successful in this Company, it has to ensure that it meets all the production expenses, these funding include output, resin, molding units, labor, and plant, housing, and purchasing. For the Firebird organization to ensure that it meets all production needs it must ensure that it has at least eight million dollars, like direct labor output. Which is a bit expensive as it also includes other procedures, and more importantly time.
Based on the facts revolving around the direct production of goods the Firebird opts to get its products from external sources. Compared to the overall production of goods which amounts to eight million dollars the direct purchase of products is cheaper and less time is involved. For instance, the purchase price of products is $750,000, and before the purchase, the company only pays receiving and inspection cost of $35,000, with an annual order processing cost of $5,000, totaling $790,000. The buying is cheaper than making thus the company should keep getting their products from an external supplier.
However, before selection of the supplier that Firebird Company needs to carry out a strategic evaluation. This ensures that the quality of products obtained is the best, the steps involved include, strategic thinking in the selection, the next step is to get assured of the reliability, quality, and value for money, through a partnership approach and thus financial security (Taherdoost & Brard, 2019). The company then identifies and lists all the potential suppliers, this process can be through trade associations, business advisors, exhibition or trade press. Then shortlist the suppliers, which is followed by research that fulfills the organization's requirements, the company goes ahead and chooses the supplier who meets the set criteria. Carry out negotiation on the terms and conditions, get a quotation, and a comparison of all the potential suppliers. From the selected few suppliers, one of them is the right for supply it is then hired.
References
Pratama, M. A., & Rosyidi, C. N. (2017, November). Make or buy decision model with multi-stage manufacturing process and supplier imperfect quality. In AIP Conference Proceedings (Vol. 1902, No. 1, p. 020026). AIP Publishing LLC.
Serrano, R. M., Ramírez, M. R. G., & Gascó, J. L. G. (2018). Should we make or buy? An update and review. European Research on Management and Business Economics, 24(3), 137-148.
Taherdoost, H., & Brard, A. (2019). Analyzing the process of supplier selection criteria and methods. Procedia Manufacturing, 32, 1024-1034.
