The Procurement and Supply Manager's Desk Reference, + Website, 2nd Edition

CHAPTER 16

Financial Decisions for Sourcing

During the normal course of business, you will be required to assist in making many financial decisions related to the acquisition of goods and services for the organization. Many of these decisions will involve determining whether to acquire the goods and services from suppliers through direct purchase or if the organization can more efficiently provide them itself by using internal resources. In addition, determining whether to buy or lease is another typical business decision that must be made on an ongoing basis. These decisions are generally referred to as make or buy and lease or buy because they require a comparative analysis of those alternatives.

In addition, there are numerous other financial leveraging strategies that you will need to understand, such as how commodity markets operate and how the cost of money through interest rates is determined—factors that are most often driven by conditions in the marketplace. In this chapter, we will explore the processes for preparing for some of these key financial decisions and their importance to the modern organization.

Performing Make-or-Buy Analysis

Make-or-buy analysis, as its name implies, is the process that determines if the organization should produce a particular product or service in-house or if it should turn to a third-party supplier and simply purchase it from them. Many companies in the semiconductor industry, for example, have increasingly turned to “fabless” operations, ...