 Make or buy decision

 Quality considerations
 Global supply chain issues
Make or Buy decision
 Which production activity should be performed internally
and which one could be subcontracted.

 In case of subcontracting there is a need to decide

whether the activities should be carried in home market
or abroad.

 Outsourcing can be done when suppliers have

comparative advantage.

 Outsourcing can also be used as an implied threat.

 To decide whether to make or buy the companies must
determine their manufacturing capabilities with their
potential suppliers.
 Advantages
Make
1. Control over cost
2. Control over supply
3. Control over quality
4. Control over technology
5.R&D initiatives
Buy
Wide choice
Release of capital, mangerial and other
resources
Benefit of concentration on core activities
Flexibility and scope of switching suppliers
Scope for bargaining and gaining price
advantage
Benefits of technological and product
developments outside the firm
Lower labour force and less industrial
relations problems
Lower impact of recession
Ease of exit
 Disadvantages
Make
1. Higher investment
2. Many a time, High cost
3. Out-suppliers may be more
innovative and efficient
4. Dissipation of managerial
expertise and other resources
5. Problems associated with
large labor force
6. Greater impact of recession
7. Difficulty of exit
Buy
Bargaining power of suppliers
Uncertainty of supply
Control over cost and quality is
sometimes difficult
Labor or other problems of the
suppliers may affect the buyer
If the vendor base is not well
developed, it may cause
several problems
Quality considerations
 Quality definition:
Meeting or exceeding the expectations of
the customers. It is conformance to specifications,
value, fitness for use, support (provided by the
company) and psychological impressions (image)

 It is applicable for both service and manufacturing

industries.
 Two quality rankings in automobiles:

- Initial quality study (IQS)

- Vehicle Dependability study (VDS)

 It measures quality after 3 yrs of ownership.

 According to 2004 data in both these

standards Toyota ranked the number 1
position.
 According to Japaneese manufacturers :

- Quality means zero defect.

- They refuse to tolerate defects of any kind.

 Before this zero defect concept :

- US companies were operating according to AQL (Acceptable

quality level)

- AQL accepts poor quality to a extent.

- But AQL is inferior to zero defect.

- Global companies that take quality seriously always prefer zero

defects.
TOTAL QUALITY MANAGEMENT
 It’s a Japanese approach

 Focuses on 3 principles :
* Customer Satisfaction
* Employee involvement
* Continuous improvements

 Its goal is to eliminate all defects.

 Focuses on benchmarking world class

standards.
 Difference between TQM and AQL :

In AQL :
Quality is the characteristic of the product
that meets or exceeds the standards.

In TQM :
Quality means that the product is so good
that the customer would not think of buying
from anyone else.
Six Sigma
 Introduced by Motorola in 1980s.

 Tool that replaces TQM

 Highly focussed system of quality control that

scrutinizes the company’s entire production
system.

 Uses statistical analysis to identify defects.

QUALITY STANDARDS
 The quality standards are of three different levels:

1. General level
2. Industry specific level
3. Company level
 ISO :

- Formed in 1947 in Geneva

- It facilitates international co-ordination and unification
of industrial standards.
- Initially it partnered with IEC (International Electro
technical Commission), which is the originator of global
technical standards.
 Two main families of standards issued by ISO:
ISO 9000
ISO 14000

 ISO 9000 is concerned with quality management.

 ISO 14000 is concerned with environmental management

 ISO 9000 apply uniformly to companies in any industry at
any size.

 It is intended to promote quality at all levels of organization

 In 2000 ISO revised the standards and now they are

referred as ISO 9000:2000

 ISO 9000:2000 performs a complete analysis of

management systems and procedures.

 ISO is not a solution to quality issues. It helps the company

to get more business.