Answer to Question #245287 in Economics for muskan

Question

Subway is selling good number of the veggie patty Burger on a daily basis. The production house offers a proposal to the management of getting the Veggie Patty manufactured by one of the suppler named Vishnu LLP. However, the management want to take the outsourcing decision also called as make or buy decision by evaluating the various important factors contributing to the decision

Discuss, the major considerations for evaluating the make or buy decisions

Answer 1

Make or buy is a valid consideration in any cost reduction or product improvement programme. Advantages and disadvantages of possible alternatives should be evaluated and the choice that identifies the minimum cost makes for the final decision.

Make requires appropriate production equipment, suitable personnel, material, adequate space, supervision, design standards and involves overheads, maintenance, taxes, insurances, management attention and other indirect and hidden costs.

It provides work for idle equipment and personnel utilise scrap material, shorten delivery period, permits strict adherence to the raw material specification and quality of final product. It ensures continuity of supply, may cost less than purchase and keep design and research infor­mation secret.

Buy Permits lower investment in facilities, smaller labour force, less handling, lower plant cost for building and upkeep, less overhead or taxes, insurance and supervision and less prob­lems of man-management relations.

It permits specialisation, allows manufacture by most efficient equipment, lowers inven­tories, change of design without loss of investment in equipment or inventory, obtaining best price of product, and supplying more varied experience and encourages growth of ancillaries.