Make or buy decision.
In the make or buy decision, first we have to calculate the total cost incurred on manufacturing the product.
In the make decision, we have to calculate the following
what will be the annual demand of the product, is there enough capacity available, raw material availability for the product, tool cost, ordering cost, labor cost, transportation cost etc .
In the buy decision, supplier has to continuously supply the products without any delay, is the supplier having enough capacity to meet our demand. we have to compare the calculated cost of making in house and outsourcing cost.
for example:
if a prodcut is manufacturing in house the cost will be Rs.5.25.
if we buy the prodcut the total cost will be RS.5.00
It means we can buy the product as the cost of buying ( outsourcing cost is very less) so we can go for buying the product .
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