Explain ‘Make Or Buy’ As A Strategy Of A Company

All companies have a set of strategies to play by when it comes to the way they produce their products and services, and in this fast moving economy, the link between product and service have become ever more important. However, in order to produce the product and services that a firm is to offer to their customers, the must first look at their production process.

To make the products in-house, or to outsource their production to other companies, in the quest to be more profitable and efficient in the delivery of their products and services has become a question in all management’s agenda to move their firms global.

The decision to produce their products and services in-house or outsource would mostly be made based on the cost-benefit situations to which the firm is in, while considering factors such as the speed and cost of delivery, weighing the benefits of outsourcing and the quality of the final products that is to be launched into their target market.

There are several advantages if companies were to choose the ‘make’ strategy to outsourcing. One of which is most evident is the total control over the cost and quality of the product and services to which the firm have when they vertically integrate their production chain. This would prove to be effective in assuring their customers value and quality of the products and services.

This form of vertically integration in the ‘make’ strategy is clearly seen in the case when Toyota Motor Corporation integrate their production line with the help of acquiring their raw inputs and distribution channels.

Using the ‘make’ strategy would also mean that all information with regards to the production of the product would be handles in-house with direct responsibility and control over security and privacy of information. This would prove a benefit to firms in sustaining their competitive advantage, as information leakage may prove fatal for firms who are unable to respond to their rivals duplicating their technology and later improving it to their advantage.

Although producing in-house brings many cautious advantages, there are also cons to the decision. For example, the employment and retention of specialized labor may sometimes prove not economically justifiable and may have adverse effects on the firm’s profitability. Therefore, when deciding to embark on a highly specialized project, firms have to decide on the internal cost of production compared to them outsourcing to other firms who already have the necessary infrastructure and labor force to handle the new project.