BBA 4326 Unit II Scholarly Activity

BBA 4326 Unit II Scholarly Activity

Columbia Southern University

Introduction

One of the main goals of almost any business organization today is the most efficient use possible of available resources, whether that be in labor, capital, or in money. It is essential that buyers make the best possible strategic decisions about how to best obtain the goods that they need (Garrett, 2015). This is where the make-or-buy decision comes into play. A make-or-buy decision results when a firm is required to make the decision on whether to produce a particular product or products in house, or to purchase them externally, this concept is also referred to as outsourcing (Kenton, 2019). Garrett (2015) outlines how outsourcing has become an increasingly hot topic within business management as more and more companies are using outsourcing contracts as a means to reduce costs, capitalize expenses, improve quality, and increase profitability. This is due largely to the fact that “often, procuring materials, components, parts, finished goods, and services from other companies proves more practical than making or providing them in-house” (Garrett, 2015, p. 15). No matter what, each organization is unique and must make the appropriate decision based on the needs of their customer and the needs of the organization as a whole, as the decision to make-or-buy can prove to be highly effective, but can also be a fatal one.

Apple Inc. – Manufacture-or-Outsource

Many of the worlds top companies choose outsourcing as a means of obtaining the goods or services that they need. There are many reason for this including not having to hire more employees, access to a larger talent pool, and the oh so popular, lower labor cost (Patel, 2017). Apple Inc. is no exception to this philosophy and the company is well known for its make-or-buy decision to outsource manufacturing and final assembly to companies in China. There are many factors for why this is, but one major factor could be the fact that the cost of an Apple iPhone would be absolutely astronomical if the company were to produce it 100% in house, in the United States. In fact, it is estimated that one single iPhone could range from $30,000 to $100,000 if the device were to be produced in house (“How Much Would An iPhone Cost If Apple Were Forced To Make It In America,?” 2018). With this fact in mind, one could easily understand that if this were the case, Apple would sell zero iPhones and the company would cease to exist.

Apple made the decision in the late 90’s to outsource final assembly of many of its products in an effort to create greater manufacturing efficiencies and to reduce costs (Baljko, 1999). This decision is one that would have been made under the procurement-planning step within the preaward phase. The preaward phase “includes procurement planning, market research, requirements determination, the make-or-buy decision, solicitation, bid/no-bid decision making, and bid or proposal preparation” (Garrett, 2015, p.17). The procurement-planning step requires buyers to decide which goods or services to provide in-house and which to outsource, and in the case of Apple, it was the decision to provide final assembly in house, or to outsource to other entities.

Within the award phase, as stated by Garrett (2015), source selection is one of the most important decisions a buyer will make and this was no different in the case of Apple. After deciding to outsource much of the final assembly of its products, Apple considered many different sources in an effort to best fit the needs of the organization. According to Baljko (1999), Apple chose LG Electronics in Korea to manufacture and assemble all of its iMac computers in what Apple described as an effort to become the most efficiently operating company within their industry. Additionally, Apple has a very well known relationship with one of the company’s chosen sources, Foxconn. Apple notes that their decision to maintain a relationship with Foxconn, a Chinese company, is based solely on the fact that “a shortage of skilled workers in the United States means that it could take up to nine months for the company to find experienced employees who could create Apple’s products. In China, this took only fifteen days” (Stewart, 2014, n.p.).

Steps of the post award phase include contract administration and contract closeout or termination. Contract administration is the process ensuring the compliance of terms and conditions during contract administration all the way up to contract closeout. Many factors are considered within contract administration including periodically discussing performance and verifying that performance is on track and meeting the expectations of each party (Garret, 2015). As far as postaward and contract administration is concerned, it seems that terms and conditions are being met and Apples expectations for performance are certainly on track. After committing to its outsourcing decision; which included a deal with NatSteel of Singapore who makes printed circuit boards for the tech giant, Apple saw an immediate increase in its gross profit margins up to 28.2% up from 22.4% just the year prior (Baljko, 1999).

Conclusion

The decision to make-or-buy, otherwise known as outsourcing, or to produce goods internally is one that can have a profound impact on an organization financially and otherwise. Businesses must continue to strive to make the most of their available resources and to use these resources efficiently, whether it is in labor, capital, or in actual money. The decision to make-or-buy requires many considerations as each organization is unique in what it needs in order to meet the needs of its customers. Apple is one example of a very large organization that chose to outsource manufacturing and final assembly processes to outside organizations in an effort to remain efficient and to keep products affordable for their target market.

References:

Baljko, J. (1999, February 12). Apple outsourcing assembly work. Retrieved from https://www.eetimes.com/document.asp?doc_id=1120735

Garrett, G. A. (2015). World class contracting (6th ed.). Riverwoods, IL: CCH.

How Much Would An iPhone Cost If Apple Were Forced To Make It In America? (2018, January 17). Retrieved from https://www.forbes.com/sites/quora/2018/01/17/how-much-would-an-iphone-cost-if-apple-were-forced-to-make-it-in-america/#48614b462d2a

Kenton, W. (2019, May 10). Understanding Make-or-Buy Decisions. Retrieved from https://www.investopedia.com/terms/m/make-or-buy-decision.asp

Patel, D. (2017, July 17). The Pros And Cons Of Outsourcing. Retrieved from https://www.forbes.com/sites/deeppatel/2017/07/17/the-pros-and-cons-of-outsourcing-and-the-effect-on-company-culture/#225d7509562d

Stewart, M. (2014, October 17). Which Five Companies Do The Most Overseas Manufacturing? Retrieved from https://www.itimanufacturing.com/news/five-companies-overseas-manufacturing/