Many firms have still elected to deal with specific make-or-buy cases on an ad-hoc basis as they arose. This situation is understandable, yet ironic. In earlier years when the cost-price squeeze was less severe for many firms, poor decisions in this area did not affect earnings noticeably. Yet, in the aggregate as discussed in this section, make-or-buy decisions do significantly affect a firm’s ability to utilise its productive resources in an optimal manner.
However, past practices are now changing. Refined management practice in this area is needed and clearly is within the grasp of most firms. Three forces will continue to stimulate this change:
1. Pressures on profit margins are severe and will continue to increase in the future. Productive resources must be utilised more efficiently.
2. Firms continue to become more highly specialised in products/services and technology, producing greater cost differentials between making and buying for many users.
3. Computer modelling capability is becoming commonplace; make-or-buy evaluation and control systems can be developed and handled quasi-automatically with this capability.
|Self-tests 5.5 and 5.6|
|Questions to self-tests 5.5_5.6
||Suggested answers to self-tests 5.5_5.6