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Business Decisions, E-Business Environment: make or buy, e-business purchasing

Please answer the question completely and in detail (e.g. premise and supporting facts) and please provide/document your reference.

1. What considerations determine if it is better to "make or buy" materials?

2. Comment on the future of purchasing in the "e business environment"; what will change and what will stay the same?

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1. What considerations determine if it is better to "make or buy" materials?

Make or buy decisions of products or inputs are encountered by supply managers who want to reveal and exploit every competency within the links of the supply chain. This decision should not be made only on the basis of economic considerations because acquisition or losses of core competencies and the control on scarce resources are also involved. Most of the products involve many inputs. For example raw materials are turned into subcomponents; subcomponents are then assembled to form finished products or may be used as an input to another product. Today very few big companies have the capability, resources, expertise and skills to do all of these functions.

These decisions are dependent on many factors (some are particularly important and some less important) such as cost considerations, time and capacity, level of control over the production or quality, technology risks and maturity, reliability of suppliers and their knowledge in the industry. Sometimes small or temporary volume requirements in the manufacturing process or limited facilities may also lead the firms to make different decisions. Total cost of ownership procedures are used by the firms to incorporate non-price considerations into the make or buy decision. The market mechanism entails certain costs like discovering the relevant prices, negotiating and enforcing contracts etc. It is possible to reduce these transaction costs by coordinating these activities. However, internal organization brings other kinds of transaction costs, namely problems of information flow, incentives, monitoring, and performance ...

Solution Summary

The 981 word response is a clear discussion of the two questions including examples for better understanding.

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