Quantitative aspects are essentially the incremental

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Quantitative aspects are essentially the incremental costs stemming from making or purchasing the component. Factors of this type to look at may incorporate things such as availability of manufacturing facilities, needed resources and manufacturing capacity. This may also incorporate variable and fixed expenses that can be found out either by way of estimation or with certainty. Similarly, quantitative expenses would incorporate the cost of the good under consideration as the price is determined by suppliers offering the product for sale in the marketplace. Qualitative factors to look at call for more subjective assessment. Examples of such factors include control over component quality, the reliability and reputation of the suppliers, the possibility of modifying the decision in the future, the long- term viewpoint concerning manufacture or purchase of the product, and the impact of the decision on customers and suppliers. 6.3.2.2 Relevant and Irrelevant Expenses As mentioned earlier, distinguishing between these two kinds of expenses is necessary to come to a make-or-buy decision. Relevant costs for manufacturing the good are all the expenses that could be avoided by not manufacturing the product in addition to the opportunity cost resulting from utilizing production facilities to manufacture the good as against the next best alternative utilization of the manufacturing facilities. Relevant costs for buying the product are all the expenses relating to purchasing a product from suppliers. Irrelevant costs are the expenses involved irrespective of whether the good is produced internally or bought externally. 6.3.2.3 Factors favoring In-house Manufacture Wish to integrate plant operations Need for direct control over manufacturing and/or quality Cost considerations (costs less to make the part) Improved quality control No competent suppliers and/or unreliable suppliers Quantity too little to interest a supplier
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77 Design secrecy is necessary to protect proprietary technology Control of transportation, lead time, and warehousing expenses Political, environmental, or social reasons Productive utilization of excess plant capacity to assist with absorbing fixed overhead (utilizing existing idle capacity) Wish to keep up a stable workforce (in times when there are declining sales) Greater guarantee of continual supply 6.3.2.4 Factors favoring Purchase from Outside Suppliers’ specialized know -how and research are more than that of the buyer Lack of expertise Small-volume needs Cost aspects (costs less to purchase the item) Wish to sustain a multiple source policy Item not necessary to the firm’s strategy Limited facilities for a manufacture or inadequate capacity Brand preference Inventory and procurement considerations 6.3.2.5 Costs factors for the make analysis Direct labor expenses Incremental inventory-carrying expenses Incremental capital expenses Incremental purchasing expenses
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