Qualitative Factors of Make or Buy Decision

QUALITATIVE FACTORS

COST AND TIME

Perform the quantitative analysis by comparing the costs incurred in each option. The cost of purchasing products from suppliers is the price paid to purchase them. In contrast, the cost of production includes both fixed costs and variable costs. For example: a business needs 10 units of its product in 10 consecutive periods; it can either purchase the units at $100 per unit or spend $1,000 to set up production facilities and $8 to produce each unit. Since the business spends $10,000 to purchase the products and $9,000 to produce the same number of products, it is better for the business to produce the products based on quantitative factors alone.

SUBJECTIVE JUDGEMENTAL

Consider qualitative factors that can influence the decision to produce the products. This includes all relevant factors that cannot be reduced to numbers, such as the experience of the business' production department and the quality of its management. For example, it might be possible that the business has no experience in producing a particular product and its prior experience in producing other products cannot be applied.

RELIABILITY AND TRUSTWORTHINESS OF SUPPLIERS

Consider qualitative factors that can influence the decision to purchase the products from outside suppliers. Examples of such factors include the suppliers' trustworthiness, the quality of its management, and the quality of its products. For example, it might be possible that the business' supplier has extensive experience in producing the product being considered and that the business wants to cultivate a long-term relationship with its supplier.

QUALITY AND RELIABILITY OF PRODUCTS SUPPLIED

Factor the qualitative factors into the quantitative analysis in order to complete it. For example, in this case, although it is cheaper for the business to produce its products, there are reasons to believe that its products will be lower quality than those that it can purchase. Furthermore, since the business wants to cultivate a long-term relationship with its supplier, it might want to purchase its products from that supplier in order to initiate the relationship.

BENEFITS - LONG TERM AND SHORT TERM

Come to a final make-or-buy decision once both quantitative and qualitative factors have been considered; this will depend on the business in question and what it is doing in order to earn its profits. Continuing to use the above example, although the business likely can purchase higher-quality products than what it can produce, the quality of its products might not influence its sales depending on its business model and what it is selling. If this is the case, the desire to cultivate a long-term relationship may or may not be enough to outweigh the $1,000 savings in costs; it depends on how badly the business wants the relationship and what it can hope to achieve by initiating it.

from https://smallbusiness.chron.com/to-qualitative-measures-makeorbuy-decisions-35918.html