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Submitted to Dr. Masood Sabzwari Course Instructor Supply Chain Management Iqra University
LETTER OF AUTHORIZATION
Course: Supply Chain Management Instructor: Dr: Masood Sabzwari Topic: Make Or Buy Supply Chain
Dear Readers This report on the topic MAKE OR BUY SUPPLY CHAIN is written with the authorization of our supply chain management course instructor, Dr. Masood. This report is related to make or buy supply chain, including cases in of when to outsource & when to make, the repot also covers decision making process, strategic decision making process & etc the report also covers some common information which gives you & etc the report also covers some common information which gives you more information about the topic. The report is required to be submitted on April 21, 2012
Sincerely
LETTER OF TRANSMITTAL
Course: Supply Chain Management Instructor: Dr: Masood Sabzwari Topic: Make Or Buy Supply Chain
April 21, 2012 Dr.Masood Supply Chain Management Facilitator IqraUniversity Karachi
Dear Instructor Here is the final report on the topic MAKE OR BUY SUPPLY CHAIN which you had authorized us to write at the beginning of the semester. The report is now ready for your perusal. This report reveals information on Make or buys supply chain, including cases, strategic decision, outsourcing decision, overall impact & etc some common information gives you better idea about the report. Thank you for providing us with such an opportunity. By availing it, were honored with a wonderful learning experience. We have endeavored to be precisely complete on this report, but still if you have any queries, feel free to call us. We would be glad to respond your queries.
Sincerely,
TABLE OF CONTENTS
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Course: Supply Chain Management Instructor: Dr: Masood Sabzwari Topic: Make Or Buy Supply Chain
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Title Page Letter Of Authorization Letter Of Transmittal Table Of Contents Executive Summary Make Or Buy Supply Chain Make Or Buy Decision Importance Of Purchase Management Selection Of Vender The Make Or Buy Frame Work Cases Which Helps Make Or Buy Strategic Decision On Core Competence Make /Buy Evaluation Process Outsource Yes/Not Appendix (A) References Appendix (B) Power Point Presentation Slides 1 2 3 4 5 6 7 9 10 11 12 17 18 19 21 22
Course: Supply Chain Management Instructor: Dr: Masood Sabzwari Topic: Make Or Buy Supply Chain
EXECUTIVE SUMMARY
Dr. Masood, our Supply Chain Management course instructor at Iqra University has authorized me to write a report on topic MAKE OR BUY SUPPLY CHAIN in the beginning of the semester. The report reveals the cases when we should make & when we should go for outsource. The report also covers the strategic advantages & process. They also revels the outsourcing types. The report also process of outsourcing. Therefore we explained the alternative of either we should make or buy our product material. The report also reveals how to minimize the cost of product & production. The report is also explained how to make decision in different circumstances.
Course: Supply Chain Management Instructor: Dr: Masood Sabzwari Topic: Make Or Buy Supply Chain
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INTRODUCTION:
The researcher studies this certain topic of make or but supply chain. Now what is mean by make or buy supply chain? A make or buy supply chain is a statement or decision making choice for your production that what you want for your business. Is it is better option to make good or purchase from another manufacturer. It is totally up to organization management what they want. Mostly this decision based on to reduce future uncertainty. What you have to do for future sales & productions we are make research teams, build up R&D departments. Their basic function is to find way to reduce cost of production & transportation. There is another technique to make this decision is forecasting techniques. There are so many ways to log on this decision. Mostly the biggest factor which affects this decision is industrial factor. Its mean this decision is vary industry to industry. The decision of make or buy supply chain also varies from concept to concept, Like forecasting, transportation, procurement, ware housing, capacity problems named as warehousing, order amount & etc Here researcher describes important factors according to his limitations.
Course: Supply Chain Management Instructor: Dr: Masood Sabzwari Topic: Make Or Buy Supply Chain
2. MAKE-OR-BUY DECISIONS
The make-or-buy decision is the act of making a strategic choice between producing an item internally (in-house) or buying it externally (from an outside supplier). The buy side of the decision also is referred to as outsourcing. Make-or-buy decisions usually arise when a firm that has developed a product or partor significantly modified a product or part is having trouble with current suppliers, or has diminishing capacity or changing demand. Make-or-buy analysis is conducted at the strategic and operational level. Obviously, the strategic level is the more long-range of the two. Variables considered at the strategic level include analysis of the future, as well as the current environment. Issues like government regulation, competing firms, and market trends all have a strategic impact on the make-or-buy decision. Of course, firms should make items that reinforce or are in-line with their core competencies. These are areas in which the firm is strongest and which give the firm a competitive advantage. Considerations that favor making a part in-house:
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 Design secrecy is required to protect proprietary technology Unreliable suppliers No competent suppliers Desire to maintain a stable workforce (in periods of declining sales) Quantity too small to interest a supplier Control of lead time, transportation, and warehousing costs Greater assurance of continual supply Provision of a second source Political, social or environmental reasons (union pressure) Emotion (e.g., pride)
Lack of expertise Suppliers' research and specialized know-how exceeds that of the buyer
Course: Supply Chain Management Instructor: Dr: Masood Sabzwari Topic: Make Or Buy Supply Chain
cost considerations (less expensive to buy the item) Small-volume requirements Limited production facilities or insufficient capacity Desire to maintain a multiple-source policy Indirect managerial control considerations Procurement and inventory considerations Brand preference Item not essential to the firm's strategy
Course: Supply Chain Management Instructor: Dr: Masood Sabzwari Topic: Make Or Buy Supply Chain
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4.
SELECTION OF VENDORS
1. The production capabilities of the vendor (a) Capacity to manufacture the required product in desired quantities. (b)Possibility of future expansion in capacity. (c) The understanding or the knowledge of the vendor regarding the buying company and its need.
2. The financial soundness of the company (a) The vendor companys capital structure. (b)Whether it belongs to a larger group of companies; whether it is a Private Limited or a Public Limited company. (c) The profitability record of the company in the past. (d)Expansion plans of the company in the future.
3. Technical capabilities (a) Whether the available machines are capable of the required quality of materials? What are the future plans of the vendor? (b)Whether there are enough technical skills available with the vendor? (c) Whether there is proper research, design and development facility available with the vendor? (d)What is the record of the vendor in filling the orders of other buying companies in the same business? (e) What has been the consistency in the quality produced by the vendor? (f) Whether the vendor has appropriate storage and warehouse facilities to retain the quality of the product produced? (g)Whether proper quality control procedures are being followed in the vendor company? Course: Supply Chain Management Instructor: Dr: Masood Sabzwari Topic: Make Or Buy Supply Chain
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4. Other considerations (a) What are the working conditions in the vendor company? (b)How are the industrial relations in the vendor company? (c) Whether there is any possibility of disruption of the supply of materials in terms of quantity and/or quality due to human relations problem in the vendor company?
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5.
The framework depicted in Figure 1 provides a graphical representation of why operational make-or-buy decisions are made and shows relevant dimensions to be studied in approaching such decisions . In contrast with existing frameworks, this provides a holistic view of make-or-buy and captures relevant factors in a structured manner. Additionally, it takes a first step towards providing performance measures for the assessment of the business benefits delivered by individual make-or-buy decisions. The external environment, on which the company has little or no influence, usually activates triggers for the make-or-buy analysis. For instance, increased price competition in the market place usually forces companies to reduce costs. The triggers are the reason(s) for undertaking the make-or-buy review and can be easily identified by asking why the decision is being made. In this example, the cost reduction trigger raises the make-or-buy question. The framework clusters factors relevant to make-or-buy into four areas: technology and manufacturing processes; cost; supply chain management and logistics; and support systems. The performance measures are closely linked to the triggers. They aim at providing some criteria to evaluate the extent to which the targets suggested by the triggers are achieved. For instance, if the trigger is cost reduction, cost saving should be the key performance measure. However, other measures such as flexibility and quality should not be neglected. Finally, the arrows coming out from the performance measures to the external environment show that make-orbuy is not a static issue. The performance measures for these decisions feed back into the external environment and possibly activate other triggers that raise again the make-or-buy question.
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technology factor affect the cost & firms change their decision. Alkoozy Tea Company in India their product Alkoozy green tea were basically based on outsource product but after introducing new technological change in the firm company make there own farm houses & make their product in new way.
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6.26 Repair:
Every firm whom main business is to make goods & there is chance of damage. So if the product is damage by some obsession then it must need repair. Repair can be many types. If repair is miner then it can be removed within company but it is major it needs to be outsourced. It must be note that by adding repair cost profit will be not affected too much.
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What is core competency you dont need to outsource that thing but the second circle essential but not core is that part of production where you have to make analyze yourself that are you in the better position to make this or not. Because in that type of secession you were having option if you are in position to make it that is not enough but it is possible that your outsource partner is much better. It is possible that he is better in aspect of cost, labor, transportation, & etc so your decision is very important in second circle. In third circle you should also need to analyze. But at that type your decision your secession is more related to outsource. Outsource something is not important but it is more important than how he did it.
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2. Data Collection
a. Collecting information on various aspects of make-or-buy decision b. Workshops on weightings, ratings, and cost for both make-or-buy
3. Data Analysis
1. Analysis of data gathered
4. Feedback
1. Feedback on the decision made By following the above structured process, the organization can make an informed decision on make-or-buy. Although this is a standard process for making the make-or-buy decision, the organizations can have their own varieties.
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9. OUTSOURCE YES/NOT
If Yes Or If Not:
If we are supporting the yes decision then decision must be have element like
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5.1 Flexibility:
Flexibility factor shows that if we not support that decision then it will not cost more to us. Because everyone knows what is our strength today is not tomorrow. It is possible that we will go for better option or not. If yes then we will do it ourselves.
5.2 Dependency:
We should be not depending on them but they are working under. If we are in surrender position then we should not go for outsource. If we are in much better position then we should go for.
5.3 Strategy:
Our strategy must be secret and not to be publicized. If our strategy will be go out then we should not go for that. It no then we should do outsource.
5.4 Organization:
Our organization must be more powerful then outsourced company. If we are not dominant then we should make it ourselves & make our product. If we are in governing position then we should go for outsource.
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5.6 Financial:
Financial the outsourced partner will be viable. Mostly its happened that by defaulting outsource partner your business will stop & affected. So your outsource partner will be financially feasible.
APPENDIX A
WWW.Google.com/images http://www.enotes.com/make-buy-decisions-reference/make-buydecisions http://www.tutorialspoint.com/management_concepts/the_make_or_buy_ decision.htm
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Course: Supply Chain Management Instructor: Dr: Masood Sabzwari Topic: Make Or Buy Supply Chain