THE MAKE OR BUY DECISION

strategic Aspects of the Make or Buy Decision

Vertical integration provides certain advantages. An integrated company is

less dependen‘ on its suppliers and may be able to ensure a smoother How of parts
and materials for production than a nonintegrated company. For example, a strike
against a major parts supplier can interrupt the operations of a nonintegrated
company for many months, whereas an integrated company that is producing its
own parts would be able to continue opera' tions. Also, some companies feel that
they can control quality better by producing their own parts and materials, rather
than by relying on the quality control standards of outside Suppliers. In addition,
an integrated company realizes profits from the parts and materials mat it is
“making” rather than “buying,” as well as profits from its regular operations. The
advantages of vertical integration are counterbalanced by the advantages of using
external suppliers. By pooling demand from a number of companies, a supplier may
be able to enjoy economies of scale. These economies of scale can result in higher
quality and lower costs than would be possible if the company were to attempt to
make the parts or provide the service on its own. A company must be careful,
however, to retain control over activities that are essential to maintaining its
competitive position. For example, Hewlett-Packard controls the software for laser
printers that it makes in cooperation with Canon Inc. of Japan. The present trend
appears to be toward less vertical integration, with companies like Sun
Microsystems and Hewlett-Packard concentrating on hardware and software design
and relying on outside suppliers for almost everything else in the value chain.
These factors suggest that the make or buy decision should be weighed very
carefully;

An Example of Make or Buy

To provide an illustration of a make or buy decision, consider Mountain Goat

Cycles. The company is now producing the heavy-duty gear shifters used in its
most popular line of mountain bikes. The company’s Accounting Department
reports the following costs of ProdUCing 8,000 units of the shifter internally each
year:

Per unit 8.000 units

Direct Materials $6 $48.000
Direct Labor $4 $32.000
Variable Overhead $1 $8.000
Supervisor’s Salary $3 $24.000
Depereciation of Special $2 $16.000
Equipment
Allocated General $5 $40.000
Overhead
Toral Cost $21 $168.000
An outside supplier has offered to sell 8.000 shifters a year Mountain Goat Cycles
at aprices of only $19 each. Should the company stop producing the shifters
internally and buy them from the outside supplier? As always, the focus should be
on the relevant cost-those that differ between the alternatives. And the costs that
differ between the alternatives consist of the costs that could be avoided by
purchasing the shifters from the outside supplier. If the costs that could be avoided
by purchasing the shifters from the outside supplier total less than
$19, then the company should continue to manufacture its own shifters and reject
the outside supplier’s offer. On the other hand, if the costs that can be avoided by
purchasing the shifters from the outside total more than $19, the outside supplier’s
offer shoul be accepted.

Note that depreciation if special equipment is listed as one of the costs of producing
the shifters internally. Because the equipment has already been purchased, this
depreciation is a sunk cost and is therefore irrelevant. If the equipment coul be sol,
its salvage value woul be relevant. Or if the machine could be used to make the
equipment has no salvage value and that it has no other use except making the
heavy-duty gear shifters.

Also note that the company is allocating a portion of its general overhead costs to
the shifters. Any portion of this general overhead cost that would actually be
eliminated of the gear shifters were purchased rather than made would be relevant
in the analysis. however, it is likely that the general overhead costs alllocated to
the gear shifters are in fact common to all items produced in the factory and would
continue unchanged even if the shifters were purchased from the outside. Such
allocated common costs are not relevant costs (because they do not differ between
the make or buy alternatives) and shoul be eliminated from the analysis along with
the sunk costs

the variable cost of producting costs of producing the shifters can be avoided by
buying the shifters from the outside supplier so they are relevant costs. We will
assume in this case that the variable costs include direct materials, direct labor,
and variable overhead. The supervisor’s salary is also relevant if it could be avoided
by buying the shifters.

example, the relevanat costs analysis of the make or buy assuming that the
supervisor's salary can indeed be avoided:

Total Relevant Costs-8.000

units
make buy
Direct materials (8000 units x $6 per unit) $ 48.000
Direct labor (8000 units x $4 per unit) $ 32.000
Variable overhead (8000 units x $1 per unit) $ 8.000
Supervisor’s salary $ 24.000
Depreciation of special equipment (not relevant)
Allocated general overhead (not relevant)
Outside purchase Price $ 152.000
Total cost $ 112.000 $ 152.000
Difference in favor of continuing to make $ 40.000
Because it costs $40.000 less tomake the shifters internally than to buy them from
the outside supplier, Mountain Goat Cycles should reject the outside supplier’s
offer. However, the company may wish to consider one additional factor before
coming to a final decision-the oppurtunity cost of the space now being used to
produce the shifters.

Relevant cost information

relevant cost for a decision are costs that should make a difference in
choosing among the options available for that decision. A cost that has been icurred
in the past or is committed for the future is not relevant; it is a sunk cost as it will
be the same whichever option is chosen. Similary, costs that have not been
incurred but that would be the same whichever option is chosen are not relevant.
In effect, for a cost to be relevant it must be a cost that will be incuurred in the
future and will differ between the decision maker’s options. For example, consider
the decision to purchase a new automobile. The purchase cost of the new auto is
relevant, while the price paid previously for the current auto is irrelevant- you can’t
change that. Similarly, the cost of your auto club membership, which will not
change whichever car you, is irrelevant. this would be true also for licenses and
fees that would be the same

Cost Classification and Cost Relevance

(With examples for the car purchase decision)

Commited or sunk Not commited,

(Generally, in the past)
Costs that differ among Not relevant
options Example: cost of shopping
for each new car being
considered-differences in
the cost of travel to the
different auto dealerships
Costs that do not differ Not relevant
among options Example: Price of old car;
also, the cost of the
buyers guide used to
shop for the new car
Discretinary
(Generally, in the future)
Relevant
Example: purchase price
of the new car
Not relevant
Example: cost of
membership in an auto
club such as the AAA

TRANSLATE

Aspek strategis dari Keputusan Buat atau Beli

Integrasi vertikal memberikan keuntungan tertentu. Perusahaan yang

terintegrasi kurang bergantung pada pemasoknya dan mungkin dapat memastikan
lebih halus. Bagaimana bagian dan bahan untuk produksi daripada perusahaan
yang tidak terintegrasi. Sebagai contoh, mogok terhadap pemasok komponen
utama dapat mengganggu operasi perusahaan yang tidak terintegrasi selama
berbulan-bulan, sedangkan perusahaan terintegrasi yang memproduksi bagiannya
sendiri akan dapat melanjutkan operasi. Juga, beberapa perusahaan merasa bahwa
mereka dapat mengendalikan kualitas dengan lebih baik dengan memproduksi suku
cadang dan material mereka sendiri, daripada dengan mengandalkan standar
kontrol kualitas Pemasok luar. Selain itu, perusahaan yang terintegrasi menyadari
keuntungan dari bagian-bagian dan bahan-bahannya adalah “membuat” daripada
“membeli,” serta keuntungan dari operasi regulernya. Keuntungan dari integrasi
vertikal diimbangi oleh keuntungan menggunakan pemasok eksternal. Dengan
mengumpulkan permintaan dari sejumlah perusahaan, pemasok mungkin dapat
menikmati skala ekonomi. Skala ekonomi ini dapat menghasilkan kualitas yang
lebih tinggi dan biaya yang lebih rendah daripada yang mungkin jika perusahaan
berusaha untuk membuat suku cadang atau menyediakan layanan sendiri. Namun,
perusahaan harus berhati-hati untuk mempertahankan kendali atas aktivitas yang
penting untuk mempertahankan posisi kompetitifnya. Sebagai contoh, Hewlett-
Packard mengontrol perangkat lunak untuk printer laser yang dibuatnya bekerja
sama dengan Canon Inc. dari Jepang. Tren saat ini tampaknya mengarah pada
integrasi yang kurang vertikal, dengan perusahaan seperti Sun Microsystems dan
Hewlett-Packard berkonsentrasi pada desain perangkat keras dan perangkat lunak
dan bergantung pada pemasok luar untuk hampir semua hal lain dalam rantai nilai.
Faktor-faktor ini menunjukkan bahwa keputusan membuat atau membeli harus
ditimbang dengan sangat hati-hati;

Contoh Membuat atau Beli

Untuk memberikan ilustrasi keputusan membuat atau membeli, pertimbangkan

Siklus Kambing Gunung. Perusahaan ini sekarang memproduksi pemindah gigi
tugas berat yang digunakan dalam jalur sepeda gunung yang paling populer.
Departemen Akunting perusahaan melaporkan biaya berikut menghasilkan 8.000
unit shifter internal setiap tahun:
Total Relevant Costs-8.000
units
make buy
Direct materials (8000 units x $6 per unit) $ 48.000
Direct labor (8000 units x $4 per unit) $ 32.000
Variable overhead (8000 units x $1 per unit) $ 8.000
Supervisor’s salary $ 24.000
Depreciation of special equipment (not relevant)
Allocated general overhead (not relevant)
Outside purchase Price $ 152.000
Total cost $ 112.000 $ 152.000
Difference in favor of continuing to make $ 40.000

Karena biayanya $ 40.000 lebih sedikit untuk mengambil alih secara internal daripada
membeli dari pemasok luar, Siklus Kambing Gunung harus menolak tawaran pemasok
dari luar. Namun, perusahaan mungkin ingin mempertimbangkan satu faktor tambahan
sebelum mengambil keputusan akhir - biaya oppurtunity dari ruang yang sekarang
digunakan untuk memproduksi shifter. Informasi biaya yang relevan biaya yang relevan
untuk keputusan adalah biaya yang seharusnya membuat perbedaan dalam memilih di
antara opsi yang tersedia untuk keputusan itu. Biaya yang telah terjadi di masa lalu
atau berkomitmen untuk masa depan tidak relevan; itu adalah biaya hangus karena
akan menjadi opsi mana yang sama yang dipilih. Sederhananya, biaya yang belum
dikeluarkan tetapi itu akan menjadi pilihan mana yang sama yang dipilih tidak relevan.
Akibatnya, agar biaya menjadi relevan, itu harus menjadi biaya yang akan terjadi di
masa depan dan akan berbeda antara opsi pembuat keputusan. Misalnya,
pertimbangkan keputusan untuk membeli mobil baru. Biaya pembelian otomatis baru
relevan, sementara harga yang dibayarkan sebelumnya untuk mobil saat ini tidak
relevan - Anda tidak dapat mengubahnya. Demikian pula, biaya keanggotaan klub
otomatis Anda, yang tidak akan mengubah mobil mana pun Anda, tidak relevan. ini
juga berlaku untuk lisensi dan biaya yang akan sama
Informasi biaya yang relevan biaya yang relevan untuk keputusan adalah biaya yang
seharusnya membuat perbedaan dalam memilih di antara opsi yang tersedia untuk
keputusan itu. Biaya yang telah terjadi di masa lalu atau berkomitmen untuk masa
depan tidak relevan; itu adalah biaya hangus karena akan menjadi opsi mana yang
sama yang dipilih. Sederhananya, biaya yang belum dikeluarkan tetapi itu akan
menjadi pilihan mana yang sama yang dipilih tidak relevan. Akibatnya, agar biaya
menjadi relevan, itu harus menjadi biaya yang akan terjadi di masa depan dan akan
berbeda antara opsi pembuat keputusan. Misalnya, pertimbangkan keputusan untuk
membeli mobil baru. Biaya pembelian otomatis baru relevan, sementara harga yang
dibayarkan sebelumnya untuk mobil saat ini tidak relevan - Anda tidak dapat
mengubahnya. Demikian pula, biaya keanggotaan klub otomatis Anda, yang tidak akan
mengubah mobil mana pun Anda, tidak relevan. ini juga berlaku untuk lisensi dan biaya
yang akan sama