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. Additionally, excess capacity among human resources can be utilized in various parts of the manufacturing process through cross-training techniques, ensuring that the company maintains a high level of productivity (Perlman, 1990, p. 74).
However, there are significant costs associated with this approach, particularly if a company uses a considerable number of parts in its finished product. First of all, there is the investment in the capital equipment require...