Purchase and Buy Decision
The project manager or the production manager of a project has to decide whether to buy or make a part, so that it is available at the right schedule to ensure continuity in manufacturing/work process, as all these activities are highly time bound. Any delays in schedules will cause a cascading effect on overall project resulting in cost overruns. There are no universal rules applicable across projects. It varies widely from project to project.
For a manufacturing project, the factors favouring in house manufacture are as follows:
- In house cost less than supplier cost
- Capacity utilisation in house in terms of machine hours and man-hours.
- To retain process confidentiality.
- To retain high level of quality.
- To keep up schedules particularly if long process cycles are involved post this part.
The factors favouring buy out are as follows:
- Elimination of capital expenditure.
- Utilisation of specialist facility.
- Lesser buy out costs than in house cost.
- Focus on one?s own area of specialisation.