Procuremen T: Make Or Buy

Procuremen t Make or Buy PRESENTED BY:

Anchal Gupta Meenakshi Bindal Neha Kaul Pallav Kaushik Vikas Khurana

PROCUREMENT 

Procurement is the acquisition of goods and/or services at the best possible price

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in the right quality and quantity,

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at the right time

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in the right place

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and from the right source for the direct benefit or use

PROCUREMENT STEPS Procurement life cycle in information system usually consists of seven steps: 

Information Gathering.

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Background Review:

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Vendor Contact: When one or more suitable vendors have been identified, Requests for Quotation , Requests for Proposals , Requests for Information Requests for Tender may be advertised, direct contact with the suppliers.

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Negotiation: price, availability, Delivery schedules.

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Fulfillment: Supplier preparation, delivery, Payment.

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Execution (installing):

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Maintenance:

Types of procurement decision: 

MAKE

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BUY

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OUTSOURCE

Option 1: MAKE: 

Developing a custom-built IS,

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Specific to the requirements of the organization,

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with the help of in-house IT department

FACTORS INFLUENCING “MAKE” DECISION: 

Cost considerations

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Desire to integrate organization’s operations

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Direct control over Information System

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Better quality control

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Information flow design secrecy is required

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Control of devlopment time

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Political, social or environmental reasons

Elements of the "make" analysis include: 

Direct development costs

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Incremental managerial costs

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Any follow-on costs stemming from quality and related problems

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Incremental capital costs

Option 2: buy 

Purchasing a suitable or Tailor-made IS

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After selecting an appropriate vendor.

FACTORS INFLUENCING “BUY” DECISION: 

Lack of expertise

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cost benefit considerations

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Small-volume requirements

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Limited resources or insufficient capacity

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Brand preference

Cost considerations for the "buy" analysis include: 

Purchase price of the requirement

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Installation costs

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Receiving and testing costs

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Acquiring costs

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Any follow-on costs related to quality or service

Make/buy decisions aren’t just about numbers, though. Questions you absolutely must consider include: What is the organization’s core competency? Could we be harmed by disclosing proprietary information? What will be the impact on quality of operations? What additional risks would we be facing? How irreversible is the decision?

Benefits Of “Make” vs. “Buy” “Make” • Reduce costs and improve service levels • Low risk of intellectual capital loss • High level of control • Cost savings retained in-house • Improved visibility into corporate and business unit performance

“Buy” • Guaranteed and significant cost reductions • Guaranteed performance, • Low up-front investment • Focus on core competencies • Increased access to innovative technology without major capital investment • Increased scale advantages from multi-client

risk of “make” vs. “buy” “Make” • Large investment required to establish infrastructure, technology and personnel • Operational complexities of support functions distract from core activities • High systems/technology maintenance costs • Scale advantages limited by company volume

“Buy” • Higher risk of loss of intellectual capital • Costs savings shared with vendor • Level of control dependent on vendors’ capabilities

Option 3: Outsourcing I.T Systems

Outsourcing 



Outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company. Outsourcing in the information technology field has two meanings Development of Application ü Application is developed by other company that specializes in that application. Hire the Services ü Services of another company are hired to manage all or parts of the services. ü That otherwise would be rendered by an IT unit of the organization. 17 ü Might not include development of new applications

overview The client organization and the supplier enter into a contractual agreement that defines the transferred services. Under the agreement the supplier acquires the means of development in the form of a transfer of people, assets and other resources from the client. The client agrees to procure the services from the supplier for the term of the contract

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advantages 

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Cost savings.  Get access to cheaper and more efficient Human resource  Cut up on Human resource training cost  Get access to better technologies at a cheaper cost  Increase productivity Focus on Core Business.  Resources (for example investment, people, infrastructure) are focused on developing the core business.  organizations outsource their IT support to specialized IT services companies.

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Improve quality Improved Information quality

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Knowledge. Access to intellectual property and wider experience and knowledge.

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Contract. Services will be provided to a legally binding contract This is not the case with internal services.

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Operational expertise.  Access

to operational best practice.  difficult or time consuming to develop in-house.

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Enhance capacity for innovation.  Companies

use external knowledge service providers to supplement limited in-house capacity for system innovation.

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disadvantages 

Loss of business § The company can get into serious trouble if the service provider refuses to provide support due to  bankruptcy  lack of funds  labor etc

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Loss of control  

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Outsourcing requires the transfer of control to the service provider. company may loose control over its process.

Partiality  

The service provider services many companies. There are chances of partiality owing to more payment by other parties. 22

example 

IT majors bag $1.5-billion outsourcing deal from British Petroleum(world’s thirdlargest petroleum refining company in the world.) Infosys will manage integrated supply & trading and exploration & production businesses, TCS has been selected for engagements in refining, manufacturing and corporate IT Wipro will provide IT Applications Development and Maintenance (ADM) services.

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E- procurement Electronic procurement is the 

Business-to-business or

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Business-to-consumer or

Business-to-government purchase and sale of supplies, Work and services through the Internet. 

More about e-procurement 

It makes easier and less expensive for companies to purchase and sell requirements online.

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Companies can focus on other revenue, management and customer services.

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The main goal is to make the entire process more efficient.

E-procurement affects business by : 

Making the process of transactions simpler.

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A strong focus on management, organization and managing your assets.

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A strong focus on purchasing and using resources, dealing with vendors, reducing loss and improving system.

Software Vendor Selection 

Technical expertise

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Domain knowledge

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Adequate manpower

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Project management skills

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Long existence in the field

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Extra skills [e-biz & workflow]

THANK YOU

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