Project Materials

MAKE OR BUY DECISION AN IMPORTANT PURCHASING TOOL AND A COST CONTROL TECHNIQUE IN AN ORGANIZATION

Chapter one

INTRODUCTION

1.1 Background of the Study

Purchasing should be considered an important role and included in the corporate planning process to guarantee that supply circumstances are reflected (McIvor et al., 1997).

Strategic methods for a certain function, such as sourcing, must be linked to other functional strategies, business unit strategies, and corporate-level plans where there are perceived synergistic benefits. Since the industrial revolution, people have debated whether to make or buy.

However, its strategic importance has not been acknowledged until now, while the strategic role of sourcing has begun to be realised.

Williamson’s transaction cost theory (1985) is probably the best-known and most classical theoretical approach to making or buying decisions. According to transaction cost economics, a company’s outsourcing decision will be based on reducing production and transaction costs.

Production costs are the direct costs associated with manufacturing a product or service, which include labour and infrastructural expenditures. Transaction costs include the costs of selecting suppliers, negotiating pricing, establishing contracts, tracking performance, and dealing with supplier opportunism.

The major variables that drive transaction costs out of markets are constrained rationality, opportunism, a small number of bargains, and information asymmetry. (Williamson, 1985; 1981, 1991).

1.2 Statement of the Problem

This study will help you better understand how outsourcing and subcontracting might effect a company’s business, operations, and profits. This study develops a technique for making or buying decisions that may be used to evaluate the rationality of outsourcing analytically. In the meanwhile, no such tool has been developed, and there is no systematic approach to making these decisions.

1.3 PURPOSE OF THE STUDY

The purpose of this research is to examine aspects associated to making or buying decisions as a key purchasing tool and cost control approach in an organisation. Specific aims include:

a. Evaluate a tool for making or purchasing decisions.

b. To assess the impact of the MOB on competitive performance.

c. Determine ways to make MOB decisions systematically.

1.4 RESEARCH QUESTIONS.

a. What effects does the MOB have on competitive performance?

b. How do you make MOB decisions in a systematic way?

1.5 Significance of the Study

This study will be extremely beneficial to other researchers who want to learn more about it, and it may also be utilised by non-researchers to expand on their own research. This study adds to our understanding and may serve as a model for future research.

1.6 Scope of the Study

This study focusses on the make or purchase decision, which is a key purchasing tool and cost-control approach in an organisation.

1.7 Limitations of the Study

The respondents’ rigorous work schedules made it difficult for them to participate in the poll. As a result, retrieving copies of questionnaires in a timely manner proved difficult.

Furthermore, the researcher is a student and thus has limited time and resources to cover the substantial literature available in doing this research.

The information offered by the researcher may not be applicable to all businesses or organisations, but is limited to the selected organisation utilised as a study in this research, particularly in the area where this study is being done.

Finally, the researcher is limited to the evidence offered by the research participants and thus unable to assess the reliability and quality of the information presented.

Financial constraints: Insufficient funds tend to restrict the researcher’s efficiency in accessing relevant materials, literature, or information, as well as in data collecting (internet, questionnaire, and interview).

Time constraint: The researcher will conduct this investigation alongside other academic activities. This will reduce the amount of time spent on research.

1.8 Operational Definition of Terms

Make or Buy Decision: A make-or-buy decision is the act of deciding whether to manufacture a product in-house or purchase it from an external provider. Make-or-buy decisions, like outsourcing decisions, reflect a comparison of the costs and benefits of creating in-house vs purchasing elsewhere.

Cost Control: The discipline of identifying and cutting business expenses to increase profitability begins with the budgeting process. For example, a corporation can seek bids from other vendors who offer the same product or service, lowering expenses.