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Outsourcing versus in-house production: Development of a make-or-buy decision model at Atlas Copco Rock Drills AB
Linköping University, Department of Management and Engineering, Industrial Economics. Linköping University, Faculty of Science & Engineering.
Linköping University, Department of Management and Engineering, Industrial Economics. Linköping University, Faculty of Science & Engineering.
2015 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

The question regarding whether to produce in-house or to purchase from an external supplier is nowadays commonly highlighted as a central and strategic decision for manufacturing firms. Furthermore, the importance of creating a competitive and consistent make-or-buy strategy that is adapted to the context of the firm as well as to today´s dynamic business environment cannot be underestimated. Today, the division Surface and Exploration Drilling (SED) within Atlas Copco Rock Drills AB in Örebro lack a standardized and holistic process to support this decision making, why this is requested. Consequently, this master thesis aims to, in line with Atlas Copco´s business strategy, develop a decision model in order to facilitate the make-or-buy decision at the SED.

In order to be able to fulfill the purpose, a thorough examination of the contemporary academic findings was executed. Furthermore, as the requested make-or-buy decision model should be adapted to the firm’s contextual circumstances, SED´s corporate strategy was analyzed and interviews with concerned employees from different functions were conducted. As a result of this, an initial list of parameters that affect the make-or-buy decision was generated. Thereafter, how to decompose, measure and prioritize this selected parameters were determined. Additionally, if any parameter should be considered as a knockout criterion was established as well. Based on this, the first draft of the decision model was developed and presented.

An in depth analysis regarding areas of improvements was thereafter executed, and the first draft of the decision model was updated accordingly. Inputs to this analysis were gained from an empirical investigation. In more detail, interviews at both SED and at external suppliers, a calculative case study where the first draft of the model was tested as well as a workshop at SED were all sources of additional inputs. Based on the outcome of the in depth analysis, modifications of the first draft of the model was made which resulted in the final version of the make-or-buy decision model.

The result of this investigation can consequently be described as a corporate adapted make-or-buy decision model. The model is divided into seven steps, namely:

  1. Core competence analysis
  2. Determination of module characteristics
  3. Configuration of the make-or-buy setup
  4. Request of quotations to potential supplier
  5. Volume flexibility, lead time and total cost analysis
  6. Risk evaluation
  7. Synthesis of above stated parameters, including the parameters:
  • time flexibility
  • impact on R&D operations
  • acquiring competitive knowledge
  • product flexibility
  • the opportunity to share risks
  • long-term capacity

Furthermore, the end-user needs to have an idea of what module and what assembly level that could be of interest and use the decision model in order to investigate whether to reject or proceed with this suggested make-or-buy setup. The model also illustrates the need of a regular re-evaluation of the decision made, in order to cope with the dynamic internal and external business environment. One additional advantage with the decision model is that it takes both quantitative and more qualitative aspects into consideration after which a holistic analysis of these can be made.

Place, publisher, year, edition, pages
2015. , 123 p.
Keyword [en]
Make-or-buy decision
National Category
Transport Systems and Logistics
URN: urn:nbn:se:liu:diva-119496ISRN: LIU-IEI-TEK-A–15/02278–SEOAI: diva2:823656
External cooperation
Atlas Copco
Subject / course
Logistics Management
Available from: 2015-07-01 Created: 2015-06-18 Last updated: 2015-07-01Bibliographically approved

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