Make or Buy Analysis for Business Decisions

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10 Questions

What is the total cost of outsourcing (TC Buy) for buying the bagels?


What is the indifference point in the make or buy analysis for Mary and Sue's bagel shop?


If Mary and Sue believe they will sell 70,000 bagels instead of 60,000, what would be the total cost of insourcing (TCMake) for making the bagels in-house?


What is the benefit of Early Supplier Involvement (ESI) in the design process?

Reducing time to market

What is the purpose of warehouses in supply chain distribution?

Transportation consolidation

How does crossdocking contribute to improving customer service?

Reducing replenishment time

What does the concept of 'overproduction' in the supply chain refer to?

Constructing products before they are needed

What is a key metric used to measure supply chain performance according to the text?

Customer service levels

What is a characteristic of e-distributors in the context of supply chain management?

Independently owned net marketplaces designed for spot purchases

What has led to decreased supply chain velocity according to the text?

Greater distances with greater uncertainty

Study Notes

Make or Buy Analysis

  • TC Buy (Total Cost of Outsourcing) represents the total cost of buying bagels from an external supplier.

Indifference Point

  • The indifference point in the make or buy analysis is the point at which the total cost of outsourcing (TC Buy) equals the total cost of insourcing (TC Make).


  • TC Make (Total Cost of Insourcing) represents the total cost of making bagels in-house.
  • If Mary and Sue's bagel shop expects to sell 70,000 bagels, the total cost of insourcing (TC Make) would increase.

Early Supplier Involvement (ESI)

  • ESI involves suppliers in the design process to leverage their expertise, reduce costs, and improve product quality.

Warehouses in Supply Chain Distribution

  • Warehouses play a crucial role in supply chain distribution by serving as inventory storage and shipping hubs.


  • Crossdocking improves customer service by allowing for faster and more flexible shipping of products.


  • Overproduction in the supply chain refers to the production of more goods than are currently demanded by the market.

Supply Chain Performance Metrics

  • A key metric used to measure supply chain performance is the fill rate, which represents the percentage of customer orders fulfilled from available inventory.


  • E-distributors are online intermediaries that connect buyers and suppliers, often providing value-added services like inventory management and order fulfillment.

Decreased Supply Chain Velocity

  • Decreased supply chain velocity is attributed to factors such as increased transportation costs, traffic congestion, and security regulations.

This quiz covers the concept of make or buy analysis in business decision-making. It explores the comparison of costs between producing internally and purchasing a product or service externally. The example provided illustrates the application of make or buy analysis in a bagel shop scenario.

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