Question

Question 3 (20 Marks)

Read the text below and answer the question accordingly.

ABC Enterprises Cc is a registered SME in the Namibian market. The company has been categorized under infant Industries as per the classification of the Ministry of Industrialization and SME Development which is entitled to benefitting from the protection from the competition from foreign owned companies. The top management of the company is entrusted with recommending to the Board of Directors on the most appropriate options on the way how to move the company forward.

The CEO has approached you on the Business Consultancy basis for advice on whether the company should start producing (make) or buy already made products   in order to increase its market share as well as compete successfully against its competitors.

What factors will you advice ABC Enterprises should consider in making such decision?                (20 marks

Answer 1

Factors which should be considered by ABC Entreprises in make or buy decisions

1. ABC enterprises should consider the capacity of the company - They should see if they have the required technology to produce the components . The capacity of the machines or plant also is a matter of consideration. The recession or depression times are most crucial when companies would like to produce those goods which they used to buy before.

2. Cost of making Vs.Cost of buying - Certain items will be cheaper taking the advantages of economies of scale. while come other cases the supplier may give huge discounts on large scale pruchases. So this is also a matter to be considered.

3. Manufacturing problems - There may be certain restrictions imposed by the Government about importing certain components . IN such cases it is better to manufacture . Where as in certain cases the firm may face certain difficulties in manufacturing due to non availability to skilled labour or lack of raw materials or simply due to natural calamities. There may be other constraints like exhorbitant prices , interruptions in delay by the vendors.

4. Size of the company

The smaller companies with low capacity can always go in for purchases from outside , whereas when the need is huge for massive companies , they can go in for making it in house and get economies of scale.

5. Quality of goods - when the firm wants to maintain quality its better they produce it in house. External firms however known they are , may not bother more about quality and this may in turn affect the quality of the finished products. Trustworthiness of t he supplier and dependability of the supply source are also matters to be considered.

In short the firm must consider a Cost -Quality trade off while deciding the make or buy decisions.