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Make or Buy Decision for Systems – An ESO perspective
Author(s) -
Channappa Sudhakar Dasari,
Pichukuppan Arunachalam,
Viswanathan Sundararajan
Publication year - 2016
Publication title -
incose international symposium
Language(s) - English
Resource type - Journals
ISSN - 2334-5837
DOI - 10.1002/j.2334-5837.2016.00312.x
Subject(s) - changeover , original equipment manufacturer , production schedule , leverage (statistics) , business , order (exchange) , competitor analysis , schedule , production (economics) , product (mathematics) , industrial organization , risk analysis (engineering) , operations research , marketing , operations management , computer science , engineering , economics , scheduling (production processes) , telecommunications , geometry , mathematics , operating system , macroeconomics , finance , transmission (telecommunications) , machine learning
With advancement of technology and to realize the product on‐time many systems are out‐sourced in the areas of Design, Development and manufacturing from the Original Equipment Manufacturers (OEM) to other suppliers and Engineering Services Organizations (ESO). Often a conflict arises whether to make the System ‘in‐house’ or to ‘procure/buy’ from approved sources. The main drivers for buying would be meeting time schedule, leverage on missing technical expertise of the sub‐system from other suppliers and concentrate on the over‐all system development. The factors that outweigh the subcontracting option include strategic reasons, non‐availability of approved vendors, show stopper in case of a failure of the sub‐system, large Non Recoverable Engineering (NRE) cost, share of sub‐system developer on the production versions and exploiting their monopoly on the cost. ‘Make’ or ‘Buy’ decision is always a valid concept in business. There are various factors influencing ‘make or buy’ decision. Quite a few of the factors are described in brief. In this paper, in order to aid decision making, three models are considered. One model is based on organisation competitiveness and product criticality, the second based on technical competencies and manufacturing capabilities and the third based on break‐even analysis. The break‐even analysis model has been explained with an example. Scenarios considering the changeover of decision to ‘make or buy’ at the middle of the production tenure is also explained.