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Management positions entail making of decisions most of which have great effects on the image of an organization. A mistake in decision making committed by one person turn out to be quite expensive to an organization as it may lead to organizational image tarnishing and customers losing trust in the organization. One of the areas that requires careful observation of details in regard to decision-making is outsourcing services to an external party in an attempt to reduce costs. In this paper, a case study on Krause Corporation is discussed.
To make or Buy
In the case study, Steve was been instructed to find ways of cutting down the cost of the pipes which were required (Meyer, n.d.). One of the ways to cut down the costs was to opt for purchasing of the pipes required in contrast to making them.
He, however, knew too well that the quest for cost reduction was never to overrun the need to uphold quality. Quality was of top priority; cost reduction, actually, took the second priority. The need to ensure that the quality of pipes was guaranteed was therefore, the very first factor that was to be observed (Meyer, n.d.).
After carrying out a survey, Steve discovered a supplier who seemingly was in a position to meet the needs of Steve of supplying high-quality pipes at a price which was seemingly below the market price (Meyer, n.d.).
If Steve was to go for this option then it could be assumed that he would have achieved his objective of getting quality pipes at a reduced cost. However, with 14 years of experience on supply management, Steve knew that this deal was too good and therefore, there was a need to countercheck the details before he could make a commitment.
The purchase option offered more promise than the make option. It should be noted that with the purchase option the pipes of the specific quality needed would be supplied; another factor to note also is that the standard of pipes that the supplier promised to deliver was seemingly above that which the company could make consistently. The price which was below the market price was another significant factor, which made the purchase option the best to pick.
Considering that the two utmost significant factors were observed in the purchase option, there was a need for Steve to dig for more information about the details of the supplying process in order to ensure that the supplier would be reliable. It is always advisable to ensure that when outsourcing services to a third party, attempts are be made to interact with the third party to clarify the stakes involved (Burt, Petcavage & Pinkerton, 2010).
In the case study, Steve would have made clarification on why only high-quality pipes were required clarifying the impact that leaking pipes would cause. Steve would also clarify that the contract being undertaken was a big contract for the company (the company for which Steve worked for), and it could impact on the company negatively if there was going to be any mistakes or backfiring. This would enable the supplier to be aware of what kind of contract he was getting into.
With 14 years of experience in supply management, it was expected that Steve would be in a good position to extract enough information from the supplier on the reliability of supplying the required product. Consequently, if the supplier proved to be reliable then Steve would accordingly go ahead and recommend the purchase option.
Burt, D. N., Petcavage, S. D., & Pinkerton, R. L. (2010). Supply management (8th ed.). Boston, MA: McGraw‐Hill.
Meyer, B. (n.d.). Krause Corporation. Institute for Supply Management. Retrieved from: http://highered.mcgraw-hill.com/sites/dl/free/0073381454/647734/krause_corporation.pdf