1-16.3 Cost Considerations

Cost is a crucial tactical consideration. An estimate of the cost for the requirement must be developed based on a detailed analysis of the costs expected to be generated by performing the work in-house or through a supplier. The following costs should be major elements in a make vs. buy cost estimate.

To make:

• Delivered purchased material costs.
• Direct labor costs.
• Any follow-on costs stemming from quality and related problems.
• Incremental inventory carrying costs.
• Incremental factory overhead costs.
• Incremental managerial costs.
• Incremental purchasing costs.
• Incremental costs of capital.
• Environmental costs.
• Disposal costs.

To buy:

• Purchase price of the part.
• Transportation costs.
• Receiving and inspection costs.
• Incremental purchasing costs.
• Any follow-on costs related to quality or service.