The Effect Of Make-Or-Buy Decision On The Organization’s Profit (A Case Study Of Okin Biscuits Manufacturing Ltd, Ijagbo, Offa)

Project and Seminar Material for Business Administration and Management BAM

The Effect Of Make-Or-Buy Decision On The Organization’s Profit (A Case Study Of Okin Biscuits Manufacturing Ltd, Ijagbo, Offa)


Chapter One


Introduction

1.1 Background Information

The “Purchasing” is widely used in industry, commerce, public corporation and management to donate the act of and the functional responsibility for procuring materials, supplies and service. The research is aware that most serious problem facing the world today are the scarcity and the growing trend toward higher cost of materials and service. But it is amazing that purchasing, which can be so vital to an organization, yet many still little understood. Although the function spend a signification portion of every income of an organization, yet many still look upon it as little and not more, than a clerical or routine activity. Too many people assumed the function is just simple exercise of processing requisition and placing order. Professional purchasing however, is not a clerical task.

However, in a narrow sense and considering the topic make by decision as an important tool for increasing profit ability, the term determines the need, selecting the suppliers, arriving at proper price, term and condition issuing the order, follow up to ensure proper delivery. The basic element involve in the performance of the purchasing function at Okin biscuit manufacturing industry limited, Igabo. Offa are obtaining the proper equipment, material, supplies and service that are needed, were they are needed at the right time , at right place, in the right quantity and quality, from the right source through the minimum effort and cost taking into consideration make or buy decision as an important tool for increasing profitability at Okin biscuit manufacturing industry ltd, Ijabo, Offa. Before any purchasing order is raised at Okin Biscuit manufacturing industry L.T.D, decision as to be made were the item in question is to be purchase or .

Manufacture internally as it will be necessary. This decision regarding what to purchase or make essential the decision of top management. In practice, the decision often seem to be taken as require by design, production or purchasing people acting together or separately with no writing policy guide and no apparent provision for periodic review. There is need to distinguish between decision and strategic decision. Make or buy decision taken at department level are those, which simply apply, to the existing policy they are tactical decision, when a change in the policy is invariably considered, it is then these decision are taken at higher level were the company’s strategy is decided. Considering make or buy decision, it is worth nothing that 60% of company’s annual budget is spent by the purchasing department, and million of naira are lost annually as a result of purchasing items. It would therefore be more economical of purchasing item. It would therefore be more economical to decide whether to make or buy. This was the conclusion of cullintin’s research first published in 1942 and subsequent investigation do not reveal that there is considerable improvement ever since culminating found that make or buy decision often attract less attention than needed and it tend to be taken on the basics of incomplete or inaccurate information and for year without being re-considered, although they have change significantly,


1.2 Statement of Research Problem

General problem in this research includes whether to made or buy in the organization set up, this has to be given a special focus in order not to miss usefulness. At the initial stage, they may be very tendency for the organization not to make it at all in that the level of profit maximization may be very low and it may lead to the close down of the firm in the future.

The company even find difficult to achieve its present objectives if it fails to run smooth production at a given period or, as started, as to be able to meet the demand of its terming customer.

A merchandising firm will run the risk of loosing customer with out adequate supplies to meet the request of customer decision to either make or buy constitutes the most significant part of the current production of most manufacturing/ merchandising firms, which indicate clearly that substantial amount of money is committed to this important tool. It is essential therefore to efficiently monitor the decision to either and over-investing.


1.3 Significance of the Study

Apart from the researchers, there are other parties to whom the research work is remarkably significant and could benefit from the client company i.e. Okin biscuits, Offa is also an advantage of gaining from the research work as it focused on its operations as the subject matter.

Reference company could benefit in the area of purchasing and supply impact made by the researcher. Lastly, the professional colleagues will equally learn much bout make or buy decision as practically carried at in the manufacturing industry in which is an additional knowledge which has been learnt already in the lecture room.


1.4 Aims and Objective of the Study

Purpose of this project is to contribute to the standard and buying performance of an organization. It also aimed at;

  1. To examine ways which manufacturing organization can achieve corporate goal in the area of profitability, lower operating cost, lower cost of finished project by applying make or buy decision in the strategic planning process.
  2. To make recommendation on area of improvement of the company’s make or buy decision
  3. To control the standard and by buying system of performance of organization.

1.5 Scope of the Study

The scope of this research work is based and centered on core areas of make or buy decision i.e who determine what to make or buy and the effect of this decision on the organization profit.

In order to consider the scope of making or buying decision, there is the used to actually know that before purchase orders are raised, a decision is made on whether the item is question is to be manufactured or bought as the case may be.

The basic element involved in the performance of this purchasing function are, obtaining the proper equipment, material and service that are needed and where they are needed at the right price, time, quantity and quantity with minimum effort.

It covers all facts of purchasing in okin Biscuit ltd, Offa. For example, whether the decision has reduced the storage Space or has added to it, whether it aids quick distribution of products, whether quality of product rise or falls with make or buy decision at okin biscuit L.T.D, offa.


1.6 Limitation of the Study

There cannot be any successful research of this nature with out encountering some difficulties which might cause it success or failure. Difficulties in securing some of the vital document containing some valid information relating to the subject matter because of like-worm attitudes of some officers who are suppose to assist in the research work. This occurred with the view that such a research be of immense improvement in their performance.

The researcher also found out that it was not easy to combine the normal class lecture with the writing of this project work hence, time management invariably become a watchword for the researcher. Finally, the research often finds it highly impossible to travel to the firm’s location because of financial constraints


1.7 Definition of Terms Used

Make:

It is the act of producing certain things.

Buy:

Is an idea of paid or getting by paying a price

Policies:

The plan of action to be taking by management of an organization, policies define the boundaries within which decision can be made and directed towards the accomplishment of objectives.

Decision:

It is the act of the making up of mind about certain things.

Capital Equipment:

Is the Installation of equipment such as plant, machinery and other major equipment used directly for production of good and services.

Purchasing Policy and Procedure Audits:

This is used to determine if established purchasing policy and procedures are being added here to.

Purchasing:

Is the continuous management process that is responsible for anticipation, identification and the provision of the good and services that are required by an organization with objectives of increase organization profitability.

Production:

It is the process of producing or making an item.

Capacity:

Ability to certain, hold or get hold of something.

Unsatisfactory:

Not giving pleasure or satisfaction from need or desire.

Specification:

Is a definite description of what is wanted.

Supplier:

One which responsibility is to supply or make available for further usage either for production or normal consumption.

Standard:

It is a model with which something is compared.

Quality:

Is anything that conforms with one’s pre-determined standard.

Evaluation:

Evaluation in purchasing is required to ensure that progress is being made towards objectives according to plan. Is part of the control process?


Chapter Five


Summary of Findings, Conclusion and Recommendation

5.1 Summary

It was identified through the application of make-or-buy decision that the Okin biscuits manufacturing industry limited, Ijagbo, Offa is able to maximize profit and maximize loss by making raw material available to the production department uninterrupted at all times.

Okin biscuits manufacturing industry limited, Ijagbo, Offa also utilizes efficient, effective make-or-buy programme and thus attains the substantial benefits that the decision afford its user. Among the benefits of the decision is that, it has reduced the number of varieties since the company has decided to buy certain parts outside the firm, the number of components manufactured by the company has reduced with it attendant effect on performance.

This in effect has stipulated a suitability of purpose and reduced stock holding drastically fund that would have been expected on stock taking have reduced drastically.

The scope of errors in the production has been reduced since parts that would have been made are now bought and there is a hundred percent concentration in the area it handles now.

It therefore permitted interchangeability; lower manufacturing cost increased the output and productivity at lower costs. The inspection of their product is simpler considering the number varieties of parts it handles and this and other benefits a mentioned above have led to the expected increase in the profitability of the company, which is the ultimate aim of any organization.

Considering all said above, one could deduce that the decision to either make-or-buy is of paramount importance to an organization of the magnitude of the okin biscuits manufacturing industry limited, ijagbo, offa and perfectly in line with the established theory in other organizations.


5.2 Conclusion

In conclusion, the researcher intends to mention here that when one observes the pains and the problem involved in make-or-buy particularly in okin biscuit manufacturing industry ltd, ijagbo,offa, the operations of this firm deserve to be praised considering the magnitude of operation it carries out.

Also, purchasing techniques like simplifications, value analysis, and standardization programmes can be used to increase the profitability of the firm and in addition, to concentrate in using negotiation in the determination of the right price. Other methods of determining the right price like the published price list and competitive bidding system should be used.


5.3 Recommendation

The researcher noticed that for any formed organization to continue to exist and function well, it is evitable that several activities, which are sectionalized, have to be co-ordinate.

Hence, it will not be possible for any department of this company to succeed without inter-relationship with other department within the organization. The researcher urges that there should be good inter-relationship between all the departments in the organization so that the organization can achieve its aims and objectives.

Lastly, the company should try to see that the staff of the company is sent to undertake short-term courses in all the department of the organization so that the standard and the profitability of the company may be achieved.


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