Operation Management Assignment : Make or Buy Decision

Topics: Decision making, Decision theory, Strategic management Pages: 9 (2920 words) Published: April 11, 2011
Executive Summary

This paper explores one of the fundamental processes in most businesses, the make-or-buy decision. This research scrutinizes the theory related to the make-or-by decision, its importance in businesses strategy, criterions to be considered in the process as well as its advantages and disadvantages. Further investigation conducted revealed the reality of make-or-buy decision and it was found that decision makers rarely apply strategic decision making rules based on sound reasons resulting in unpremeditated and irrational conclusions.

An international clothing retail business, ZARA, is chosen to demonstrate the application of such decision process in its production.The business outline is briefly described and the make-or-buy decision model practiced in the company is further investigated.

By and large, this paper focuses on the central knowledge related to the make-or-buy decision. It is imperative for the decision makers to understand the process prior to their involvement in the operation managements. Awareness of such knowledge is paramount to the businesses, in order to achieve a competitive and efficient business strategy.


In our contemporary society backed by commercialization and the drive of profit-driven markets there’s an emphasis for business to strategically formulate their make-or-buy procurement decision. It is crucial for them to decide whether to produce their product, process, or service internally or externally (Ahlstrom & Moses, 2009). This decision often is considered to require cross-functional knowledge, of which models and guidelines are normally developed to understand the entire structure and outcome of the make and buy procurement decision (Lonsdale, 2009). Numerous models have been developed to date, specifying which criteria to take into consideration in the make-or-buy decision process. However, the scopes of cross-functional make-or-buy decision process, and the steps taken to reach a decision, are not adequately investigated yet (Probert et al., 1993, as cited in Ahlstrom & Moses, 2009). It is argued that there are also few practical findings on methodical approaches.

Canez, Platts, & Probert (2000) stated that the make-or-buy decision represents a fundamental dilemma faced by many companies. They also added that while companies have finite resources they cannot constantly afford to have all manufacturing technologies in-house, thus resulting in an increasing awareness of the importance of make-or-buy decisions. Regardless of the fact that the strategic implications of make-or-buy decision have been explored for many years, most decisions are often made purely on the cost basis. Nevertheless, last decades have shown that a great emphasis has been placed on providing a more practical structured guidance on make-or-buy decision (Canez et al., 2000). In recent years, a number of approaches have been proposed and proven to be helpful in determining the make-or-buy strategy. However, it was also found that these approaches were highly exaggerated to help address specific make-or-buy decisions in a holistic, practical and structured manner, thus rendering them ineffectual.

The need for businesses to formulate a consistent, competitive and efficient manufacturing strategy has lead to an escalating recognition of the strategic application of the make-or-buy decision. This paper investigates the general concept of make-or-buy decision, important areas of related theory as well as underlining the magnitude of such decision in the development of a manufacturing strategy and operations management.

2.0Literature Review & Related Theory

Jaydeep (2005) stated that, in general, the make-or-buy decision involves determining whether a particular component should be made in-house (internally) or purchased externally. It is one of the most important decisions for many manufacturing organizations as they rationalize their supply chain for improved...
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