outsourcing parts

Project Description:

the situation now is whether to produce those parts internally or outsource the manufacturing of those parts. the factors that influence in these kinds of situation are costs involved and time taken to manufacture those parts, these are quantitative factors. with regards to the qualitative factors they are the quality of the parts which are manufactured outside. are they of better quality than what they are produced in house and secondly the person to whom the job is outsourced is able to meet the demand? are the parts supplied on time and as per the commitments? short-run decision analysis is the systematic examination of any decision whose effects will be felt over the course of the next year. the decision analysis must take into account the organization’s strategic plan and tactical objectives, the related costs and revenues, as well as any relevant qualitative factors (needles p1186).

in the current situation we understand that the cost of purchasing for vendors is less as compared to manufacturing those parts in his department. moreover if the vendors are experienced in production of those parts and the quality is meeting the standards then we can go for outsourcing. the main reason for producing the parts internally is that automated machine would remain idle for several hours a week and there is a fixed cost involved in purchase of that machine and marsh wants to have productive use of that machine. if the vendors are not competent enough to manufacture the parts as required then it can be considered to produce internally.

the factors which could influence the decision of miss issac to buy the parts from vendors are most assuredly cheaper costs. the vendors would have latest technology and have knowledge about the parts. the production in house is limited. the volume required is not huge so they can be purchased externally. the brand preference could be one reason. it can be a provision for second source of production if there is breakdown of automated machines.

the two most important factors which would affect miss isaacs decision whether to make those parts internally or outsource the manufacturing are costs and availability of products is and when required. if the costs are so cheap that even the machines are idle for several hours it does not bring down the profitability then it should be any issue. so both quantitative and qualitative factors need to be considered before choosing any of the options.


http://www.tutorialspoint.com/management_concepts/the_make_or_buy_decision.htm http://accountingexplained.com/managerial/relevant-costing/make-or-buy-decision

needles, b. e., powers, m., & crosson, s. v. (2011). principles of accounting (11th ed.). mason, oh: south-western cengage learning

there are two major factors that need considered. you mentioned quality, lead time and ability to produce the product. these non-financial issues must be considered but how much are they worth? should we pay 10% more 20% more? where do we stop and when does this become a conflict of interest with zack making a decision that effects his bonus?

i am looking at getting the questions at the end answered please with references.
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