Discuss about the Manufacturing The Products In House.
The decision regarding whether a business needs to manufacture or purchase a product depends on both tangible and intangible factors, which might change with the passage of time. Manufacturing the products in-house might help in saving money and time. However, it is convenient as well to purchase from a vendor specialising in the particular item. Moreover, making a product from the initial stage could be a method of providing additional work for the valued staffs during the slowdown of the business.
A make or buy decision is the act of selecting between making a product or purchasing the same from an external supplier. In make or buy decision, the most significant factors to be taken into account include portion of quantitative evaluation like the related production cost and whether the organisation has the capacity to manufacture at the needed levels. It is referred as the decision of outsourcing, as it contrasts the benefits and costs related to production of a particular product or service internally to the benefits and costs associated with hiring an external supplier for the questionable resources. In order to contrast the costs rightfully, each aspect about the acquisition and item storage needs to be taken into consideration.
The primary factors to be considered in deciding whether to manufacture the canisters or buy the same from the outside supplier include the following:
If Playdough Company could develop a product, which is better in contrast to purchasing from a vendor, it is necessary to make the canisters in-house. It is assumed that the organisation could charge a greater price in justifying labour and materials. However, if the organisation fails to specialise in canisters, a specialist vendor would be highly effective. Since Playdough Company is involved in making value-added canisters, it could provide greater quality by making raw materials from the beginning, as they would be fresh optimally.
The product volume that the organisation requires would affect the decision of whether to manufacture or purchase the same. For instance, if Playdough Company needs a box of canisters, it is impractical to fashion the same from the initial stage. However, sometimes a huge demand in the market could be a cause of not to make an in-house product. In case, the organisation uses 10,000 boxes for packaging products, it could be considered as cost-effective to contract to a third party firm foe making them to a custom size (Fullerton, Kennedy and Widener 2013).
When Playdough Company has been operating in high gear to meet the current demand, it would be highly feasible to make the products, instead of purchasing the same. However, if the vendor of the organisation that manufactures the product belongs to a cross-border nation and it could not dispatch the needed items on short notice, it is feasible to manufacture the product in-house. The convenience of purchasing or making products might change in relation to the overall sales volume that the organisation is presently transacting along with the amount of additional space and labour of the same.
In the words of Otley and Emmanuel (2013), making in-house products is a significant strategy of marketing. For instance, in case of clothing store making and selling its own dress line provides the customers with an added value and a strong brand. Similar is in the case of a restaurant making its own sauces and dressings, which provide unique flavours. In case of Playdough Company, making canisters could add additional features to the product. However, the discriminating and savvy customers often concentrate on whether the organisation has made or purchase the products it sells. Hence, Playdough Company could develop its own inventory for building an educated and loyal client base.
Thus, based on the above discussion, it could be stated that the factors affecting the decision of Playdough Company to purchase canisters instead of producing them in-house comprise of lack of internal expertise, small requirements of volume, desire for varied sourcing and the fact that the item might be crucial to the strategy to the organisation. Excessive consideration might be provided, if the organisation obtains the opportunity to work with a firm providing outsourcing services successfully in the market to develop a long-term association. In a similar fashion, the influential dynamics towards manufacturing an item include the current capacity of production, effective quality control and proprietary technology needing protection. Finally, it is necessary for the firm to consider whether the supplier could seek for long-term arrangement, if necessary during high demand situations.
Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2013. Management accounting and control practices in a lean manufacturing environment. Accounting, Organizations and Society, 38(1), pp.50-71.
Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management control. Springer.