MIKE SIMPSON / ANDREA GENOVESE
This case study looks at strategic approaches to purchasing. It covers vendor rating, development and consideration of costs. Buying-in a product is often called outsourcing or subcontracting and very often these terms are used interchangeably when in actual fact they are quite different. Purchasing concerns the acquisition of resources for the organisation so that it can continue to make the products and services the organisation provides to its customers. Essentially, the company purchases materials, a component or item from a supplier. Strategic approaches to purchasing include vendor rating and development and consideration of costs, quality, delivery, flexibility, technical knowledge and reliability of suppliers. However, an initial consideration is to look at the costs of purchasing an item versus the costs of making the same item within the company. This problem is called the 'Make or Buy Decision' which this case investigates. Aimed at students on operations management and procurement courses, this case study shows the reader how to analyse the costs of purchasing an item versus the costs of making the same item within the company. Through worked examples and presentations of difficult concepts such as the Derivation of the Break-even Quantity, Mike Simpson and Andrea Genovese guide the reader through the highly technical approach to such complex purchasing decisions. This case study introduces the reader to essential concepts such as outsourcing and purchasing and also provides them with essential definitions. The authors also guide readers through critical calculations.
