Make or Buy

Global Sourcing and Supply Chain Management

Group 6: Margarida TENENTE, Michaela NOVOTNA, Patricia GUHT, Pranav GOYAL

Options in front of ABC
MAKE
Produce Kettoxin Green-field
Acquire OPG Weak financial position of OPG
Lower Valuation

BUY
Purchase Kettoxin from another supplier: BARNES
Volume capacity does not meet the demand of
ABC
Other suppliers must be considered as well

Strategic decision making:

Decide on most efficient use of resources
Optimize purchasing activities considering production,
cost and risk constraints
Long-term decision

1
Criteria Make Buy
Cost Initial investment + ROI Price of the material
Sourcing risk
(reliability and flexibility of
the supplier)
Production directly at the
production site
Transportation cost and
time
Quality Meets the needs of ABC Difficult quality control
Innovation Requires further investments Covered by the supplier
Volume capacity Flexible Based on contract
Competitive advantage Integration of activities,
economies of scale
Negotiation with suppliers
Control Control over quality,
innovation and volume,
Environmental, work safety
and social standards
Limited control
Criteria Used for the Evaluation 2
Decision to Make
PROS (+) CONS (-)
Independence from suppliers
reduction of sourcing risk and
direct control over the product

Reduction of transportation
cost

Volume flexibility directly
fits the ABCs demand

Quality control over the
production

Innovation can lead to new
competitive advantage
Initial investment to acquire
OPG and investment into new
technology

Lack of knowledge in the
production of Kettoxyne

Decision to BUY - Contract with Barnes
PROS (+) CONS (-)
Lower cost possible cost
savings and no initial
investment

Offer of new technology
without further investments
into innovation

Possibility of creating a
strategic partnership

Supplier not exclusive for
ABC might result in lack of
reliability or/and flexibility of the
supplier

Maximum volume capacity
of Barnes, does not cover the
demand of ABC

No protection of know-how
intellectual property concerns
Recommendations for ABC
SHORT-TERM:
LONG-TERM
BUY from BARNES

Improved contract conditions
Financially most attractive
Capacity is smaller than ABCs demand

MAKE

With current traditional process:
Independence
Reliability of supply

3
Quality of the product
Financial Figures (prices, transportation costs, cost of
acquiring OPG etc.) to estimate profitability - considering
financials it would be possible to estimate whether all 3
facilities are necessary;
Barnes reputation and competitors;
Future capacity;
Market research (innovation, materials, processes)

Elements for further investigation
4
Costs it would help to make the decision whether to buy or
make comparing the prices

Uncertainty:
Market & know how
Quality control
Innovations
Production capacity
Future demand forecast

Common problems to come to conclusion
5
Purchasing Role
6
High Material Costs

Cost Savings through efficient buying

High financial stakes




Market
Expertise
Technical
Expertise
Negotiation
Skills
Supplier
Management
Legal
Expertise
Successful Implementation
7
GOAL
!!
Quality
Control
Involve
Purchasing
Department
Relations with
Barnes and
other
Suppliers
Capacity
Control