Operations and Supply Chain Management
Transitioning to Digital and How to Get Started
Module 6: Scaling Up Your Supply Chain
Required Assignment 6.3: Make-or-Buy Decision
Activity- Make-or-buy decision is an act of choosing between manufacturing a product
in-house or purchasing it from an external supplier.
Suppose a manufacturer needs to produce a custom aluminium housing for a particular
customer order. Because it currently does not have the equipment necessary to make
the housing, it would have to acquire machines and tooling at a fixed cost (net of
salvage value after the project is completed) of $250,000. The variable cost of
production is estimated to be $20 per unit. The firm can outsource the housing to a
metal fabricator at a cost of $35 per unit. The customer order is for 12,000 units.
Tasks:
Q1. In this situation to make-or-buy decision, calculate the quantity produced using
equation Q=FC/(VC2-VC1)
Q2. Manufacture a product in-house or purchase it from an external supplier. What
should they do? Justify your response.
Operations and Supply Chain Management
Week 6
Operations and Supply Chain Management
Transitioning to Digital and How to Get Started
Q3. Explain why outsourcing is essential for an extended supply chain and a global
supply chain.
Operations and Supply Chain Management
Week 6