Make-or-Buy Decision:

Make-or-Buy decision (also called the outsourcing decision) is a judgment made by management whether to make a component internally or buy it from the market. While making the decision, both qualitative and quantitative factors must be considered. Examples of the qualitative factors: control over quality of the component, reliability of suppliers, impact of the decision on suppliers and customers, etc. The quantitative factors are actually the incremental costs resulting from making or buying the component. For example: incremental production cost per unit, purchase cost per unit, production capacity available to manufacture the component, etc. The following example illustrates the numerical part of a simple make-or-buy decision. The estimated costs of producing 6,000 units of a component are: Per Total Unit Direct Material $10 $60,000 Direct Labor 8 48,000 Applied Variable Factory 9 54,000 Overhead Applied Fixed Factory 12 72,000 Overhead $1.5 per direct labor dollar $39 $234,000 The same component can be purchased from market at a price of $29 per unit. If the component is purchased from market, 25% of the fixed factory overhead will be saved. Reasons for Making: Cost concerns Desire to expand the manufacturing focus Need of direct control over the product Intellectual property concerns Quality control concerns Supplier unreliability Lack of competent suppliers Volume too small to get a supplier attracted Reduction of logistic costs (shipping etc.) To maintain a backup source Political and environment reasons Organizational pride

Reasons for Buying: Following are some of the reasons companies may consider when it comes to buying from a supplier. Lack of technical experience Supplier's expertise on the technical areas and the domain Cost considerations Need of small volume

Insufficient capacity to produce in house Brand preferences Strategic partnerships

Functional aspects of make or buy decisions: Financial aspects (Fixed and variable cost) Technological aspects (expertise in making, training, supporting team) Marketing aspects (competition, shares, If market is good making is suggested else buying) Purchasing aspects (Buying depends on raw materials availability and the quality) Strategic aspects (Maintenance, co-operation

Other than these some other intangible aspects are 1. 2. 3. 4. Environmental factors Labour acceptance Goodwill Confidence

Factors influencing make or buy: 1. 2. 3. 4. 5. 6. 7. Volume of production Cost analysis Production capacity Store maintenance Quality Availability Secrecy

Break even analysis:

For manufacturing a product, two things has to be considered, fixed(insurance, tools, rent) and variable cost (labour, material). Sum of them is total cost. Break even pt is the pt where cost of making meets the cost of buying.

Problems Reason for change in plant location:

Change Change Change Change in in in in demand availability of material & transport govt policy supply

Stages in selection of plant location: Selection of country (Govt policy, political situation, competitors, market condition, nature) Selection of region (Available labour, cost of labour, availability of goods, climate, tax, law) Selection of community (need to decide on urban area, semi urban, rural area)

Selection of site (land rate, skilled labour, transport facility, local politician, rules)

Urban location(Rural will be vice-verse): Adv: Transport, skilled labour, availability of goods, good education, fast network Disadv: Cost of land/living /labour is high, demand will be more, sufficient land will not be available, costly labour Objectives of good plant layout: To To To To To reduce accidents reduce time consumption increase productivity give work satisfaction reduce idle time

Principles of plant layout: Integration principle (Making men, goods, machines united in one area) Space utilization principle (Every corner is used for some works) Maximum flexibility principle (sections can be altered at times) Minimum distance principle (Travel distance should be reduced) Safety, security principle (Accidents should be resuced)

Classification of layouts: Product layout Process layout Fixed position layout Group layout Product layout In this type of layout the machines and equipments are arranged in one line depending upon the sequence of operations required for the product. It is also called as line layout. The material moves to another machine sequentially without any backtracking or deviation i.e the output of one machine becomes input of the next machine. It requires a very little material handling. Eg. Motor car production Adv: Disadv: Smooth and continuous operations Low cost of material handling Simple and effective inspection of work
Process layout::

Higher initial capital investment Lesser flexibility of physical resources Breakdown of one machine will disturb work

In this type of layout the machines of a similar type are arranged together at one place. This type of layout is used for batch production. It is preferred when the product is not standardized and the quantity produced is very small. Adv: Disadv: Low initial investment

More skilled labors needed

More flexible Good machine utilization Fixed position layout:

Frequent inspection is needed High material handling cost

Fixed position layout involves the movement of manpower and machines to the product which remains stationary. The movement of men and machines is advisable as the cost of moving them would be lesser. This type of layout is preferred where the size of the job is bulky and heavy. Example: locomotives, ships, boilers, generators, aircraft.. Adv : Investment on layout is low, layout is flexible, adjustments can be done Disadv: Capital investment is high, large space required, confusion is possible Group layout: It is a combination of product and process layout. It forms the advantage of both the layouts. Small companies can operate with this layout. Objectives of material handling: To To To To save money & time reduce work-in progress improve working condition enhance performance of goods

Principle of material handling: In real material should not be handled without need, else only little movement. Time of each move should be minimized Use mechanical device than labour Safety of labour should be kept Avoid back tracking and duplication Appropriate material should be used for handling Gravity can be used at times

Types of material handling equipments: 1. Conveyor (Device used for horizontal and vertical transport) Belt (used for small goods) Roller (solid item with flat bottom) Bucket (granular ,powdered or liquid) Chute (transport material from top to ground) Chain 2. Cranes and hoists (Hoists are the device connected to the crane) 3. Truck and similar vehicles (Transport device for road coverage) Unit load:

It is defined as the number of bulk material arranged and can be picked up and moved as a single object which are too large for manual handling and upon being released will return to its initial stage for further process. Types of unit load: 1. Part bins 2. Pallet box 3. Container 4. Wire mesh box 5. Drum Containerization: containers have std size and used for transportation. Larger shipments Palletization: Smaller than containers and restricted shipments. Elements of working environment: 1. 2. 3. 4. 5. 6. Lighting Ventilation Noise Temperature, humidity Cleanliness Toxic substances

Cost of accident: Direct cost: 1. Compensation, 2. Medical expenses, 3.First aid, 4.Training new worker, 5.loss of production Indirect cost: 1.wage paid to injured and others for the day,2. Legal expenses, 3.Cost due to damage of machine, 4.cost due to spoiled good Causes of accidents: Unsafe working condition (Oily floor, cracked floor, poor house keeping, unhealthy condition) Unsafe acts( work postures, touching moving instruments, fighting with co-worker, lifting big good) Environmental factors Cause due to poisonous gas Personal problem of employee (frustration, boredom,loans) Alcoholic consumption Inadequate supervision Electricity Human error (fear, family problem, age, inexperience)

Safety measures: Fencing of machinery Employing young person for dangerous machines Self working machines Replacing old machines Cranes Lifts and hoists Floor and staircase

Personal protective devices: Goggles Shoes Gloves Helmets Safety clothing Mask Belts Ear protector