ACTIVITY5

1. Why should an organization switch from making to buying?

There are many reasons why an organization switch from making to buying; beyond
situations where there is outside pressure to make this decision, an organization
should make this switch if it is strategically appropriate and will add increased value
to the organization. Some of the major factors that would instigate a switch from
making to buying would be if buying resulted in better quality, delivery, cost
reductions and a strengthening of the firms’ competitive decision. If an organization
possesses the ability to effectively and accurately analyze these factors, the decision
should be made to buy if the benefits to the organization outweigh the costs.

2. What is outsourcing? How might one make the decision to outsource an

activity or not?

Outsourcing refers to the decision of an organization to buy a product which they

had been previously making in-house; this is done typically to focus on core
competencies, achieve cost reductions and maximize the value added by the
organization. An organization may make the decision to outsource an activity based
on whether the potential benefit of doing so outweighs the potential costs. In order to
decide on whether to outsource a function, the benefits of doing so must be greater
than the costs incurred in doing so; as well, further analysis must be completed to
see if it would be more effective to outsource only some activities in a given function.
In order to determine this, a potential outsourcing targeted function must be broken
down into its components; any deemed strategically critical should remain in-house,
and which can be outsourced to another supplier.

3. Why is the make or buy decision considered strategic?

The make or buy is considered strategic because it sets the entire tone for the
organization, and is critical to productivity and the ability to remain competitive. This
decision affects every single functional area of the organization, and dictates a large
part of the organizations operations. It allows companies to allocate resources in the
most effective manner, and affects the core focus of the company, thereby having a
large effect on the strategic processes and decisions of an organization. It allows for
cost efficiencies, the creation and abolishment of strategic relationships, and can
effectively shift the power in an industry; the strategic value of this decision making
process is quite large.