Considerations in Purchasing Parts

For a manufacturing organization, the decision to make or purchase parts can be a critical factor in the long-term success of the company. If the company decides to make specific parts and is unable to do so economically, the resulting cost structure could render the company unable to compete in the market. If, on the other hand, the company decides to purchase all materials and vendors are unable to meet the manufacturer's requirements for delivery or quality, the company could, through no fault of its own, face competitive pressures that it is unable to overcome. There is no one decision that is correct for all companies; the decision to make or buy varies from industry to industry, and even from company to company. This research examines some of the considerations which should be taken into account when confronting this critical decision.

From a control standpoint, manufacturing all components is the preferable route. In this scenario, all parts of the finished piece are manufactured by the company, with the result that the company is ultimately responsible for the quality, quantity, schedule and design of all parts. In this way, the company can keep manufacture no more parts than are needed at any point in time, maintain a high level of quality and design custom parts exactly to specification. This approach makes advanced process controls, such as just-in-time inventory management, easier to implement since there are no outside vendors to include in the process.

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s are built into the contract. If the vendor fails to meet these stipulations, the contract can be canceled, or payment withheld (Harding, 1990, p. 18). In addition to providing adequate controls with regard to schedules and quality, purchasing from outside vendors also eliminates the need to have additional manufacturing personnel and equipment on site. This can often reduce the amount of space required for the company, with the result that a smaller manufacturing facility can be used, saving the company additional funds. Purchasing from outside sources does not eliminate the need to add additional staff, however. While the staff required are not in the manufacturing area, this strategy does require additional purchasing staff. In addition, the company will need to ensure that a manufacturing engineer is included in the procurement process if the part in question is of a highly technical nature, or changes in configuration. This engineer will work with the engineers at the vendor in order to draw up specifications that fit the company's needs precisely. There are other drawbacks associated with purchasing parts from outside vendors, most of which stem from the loss of control that the company faces when it chooses to purc

Category: Business - C