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1 6.1 - Knowledge Management: Risk Management (GRP) Group 2: Tate Brock, Michael Carter, Joshua Li, Cory Rust, Erfan Zanegeh EGMT 620 Embry-Riddle Aeronautical University Nov 26, 2023

2 Make or Buy Analysis Consensus Statement Make or Buy analysis can be conducted to minimize total costs consisting of manufacturing, purchasing, quality, and lateness costs. Analysis models can be constructed to cover decision making processes like component allocation and process & supplier selection. Constraints may include tolerance limits, process variance, production capacity, consumer demand, and minimum supplier selection. Engineering managers should select or develop and tailor an effective make or buy analysis model to suit a multistage manufacturing process. One potential way to reduce costs is to outsource services to private firms, non-profit organizations, or other governments that can provide the services more efficiently (Michel, 2004). Make or buy analyses can be used to determine if outsourcing the service will result in cost savings over the life of a project. It is important to understand how to effectively conduct a make or buy analysis. This includes understanding what costs should be excluded from the analysis, and what costs are often overlooked but should be considered in the analysis. Sunk cost is a cost that has already occurred. These costs should be excluded from the analysis because they will remain the same regardless of the make or buy decision. On the other hand, opportunity cost includes the cost of using assets or resources for other purposes and should be considered in the make or buy analysis. Make or Buy Analysis Annotated Bibliography Michel, R. G. (2004). MAKE or BUY? USING COST ANALYSIS TO DECIDE WHETHER TO OUTSOURCE PUBLIC SERVICES: [1]. Government Finance Review, 20(4), 15- 21. https://www.proquest.com/trade-journals/make-buy-using-cost-analysis-decide- whether/docview/229689684/se-2

3 Take-away: This article considers both the financial and nonfinancial effects of outsourcing, outlining a method for evaluating whether it makes financial sense to outsource a service. Criticism: While the article focuses specifically on the costs involved in this type of decision, other factors such as cost of service, service quality, and stakeholder impact must also be considered. Pratama, M. A., Rosyidi, C. N., & Pujiyanto, E. (2018). Two stages optimization model on make or buy analysis and quality improvement considering learning and forgetting curve. Journal of Industrial Engineering and Management, 11(4), 794–813. https://doi.org/10.3926/jiem.2615 Take-away: One significant takeaway from this study is the integration of learning and forgetting curves into the decision-making process, which provides a dynamic perspective on the analysis of make or buy decisions. Criticism: The model may heavily rely on assumptions or specific scenarios that might not universally apply across industries or contexts. Rosyidi, C. N., Pratama, M. A., Jauhari, W. A., Suhardi, B., & Hamada, K. (2016). Make or buy analysis model in a multi-stage manufacturing processes. 2016 IEEE International Conference on Industrial Engineering and Engineering Management (IEEM) , 971–976. https://doi.org/10.1109/IEEM.2016.7798022 Take-Away: This study considered process capability, manufacturing capacity, customer orders, routing process to develop a make or buy analysis model for determining optimal processes and suppliers in minimized manufacturing, purchasing, scrap, and lateness cost, and quality loss. Criticism: Uncertainty should be factored into the model by incorporating assembly, lotting size, and scheduling problem uncertainties in results.

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