Need 120-150 words response to the questions
Make-or-Buy Analysis
Tenace Company is a manufacturer of communications products for commercial, government, and military applications. It has several product lines and three families of products that share common platforms but have dual-use for military and commercial applications. The company has four divisions:
- Government Solutions (nonmilitary products)
- Military Systems and Services (military products)
- Communications Services (commercial products)
- Product Services (after-sales services and warranty services for all divisions)
Tenace is interested in a new product launch that takes advantage of recent developments in batteries and other power supplies for small communications devices.
The Vice President, Kirk Devine, and the Program Manager, Pete Noworry, have worked together for about 6 months in developing a plan that they will present to senior management next week. They have visited three electronics manufacturers who are interested in developing the product under the Tenace brand, but with different conditions about future use of the technology. The procurement department has been involved only in the last few weeks and has not contributed much to the program planning so far.
The key chart of the presentation (Chart 1) is presented below and the entire presentation is being distributed to the senior staff today. Your boss reviews the charts and is alarmed that Devine and Noworry have not made any make-or-buy decision; they have proceeded as if the program will be outsourced entirely without an internal bid to design and develop the product.
Your boss has many concerns, not the least of which is that all three potential suppliers require large down payments to get started and they each require an outlay of about $1M in Year 1, when their prototypes would be due for testing and approval. Given that there may be some changes to the design before the design stage is completed, it may end up costing more; the other main concern is that two of the three companies will retain some control over the IP and that will require a lot negotiation to ensure that these companies don’t contract with competitors in the future.
You are good friends with Noworry and, over lunch, he confides that the team did not pursue any internal bids because the team assumed that the internal design would be more costly and that it would end up being over-designed to military standards and not commercial standards , adding that “that’s what Tenace always does and why we have so few original commercial products”. No internal studies were ever requested or completed.
Noworry comments that the projected unit cost is in line for Tenace to reach the market at a competitive price that has about 35% margin. Also, he adds, “it is just so cool to travel to these places and work with these engineers; I can’t wait to get started. Any of them will be a good choice!” When you reply that there are rumors of layoffs throughout the company and that $1,000,000 of internal funding to launch a new product would keep a lot of people employed, Noworry seems not too concerned.
You and your boss will meet later in the day to discuss the situation. The big issues to address are:
- How do we analyze and select the right bid?
- How do we encourage the company to develop an internal bid with so little time left in the program plan?
CHART 1: Overview of Product Design and Development
|
|
Singapore Tech, Inc. |
Japan Radio Systems, Inc. |
Canberra Communications Corporation |
|
Nonrecurring Eng Costs |
1,300,000 USD |
2,100,000 USD |
1,100,000 Australian Dollars |
|
Duration to complete Eng Design |
1 year |
14 months |
9 months |
|
Complete System? |
YES |
YES |
NO |
|
Additional Development? |
No |
No |
YES, external case requires add’l investment |
|
Intellectual Property (IP) Ownership? |
Work-for-hire and 100% Tenace IP |
New elements owned by Tenace; existing elements retained by JRS |
New elements owned by Tenace; existing elements retained by CCC |
|
IP License |
Not required; owned by Tenace |
Nonexclusive license and JRS has right to license others |
Exclusive rights to new technology and CCC can license commercially after 5 years |
|
Estimated Product Cost (delivered to Tenace factory) |
$1,000/unit |
$950/unit |
$1,200 |
|
Required Duration of Production Contract |
3 years |
3 years |
2 years |
|
Product Warranty |
1 year |
1 year |
2 years |
|
Warranty service Location/Turnaround Time |
Singapore/3 months |
Tokyo/4 months |
Canberra/2 months |
|
|
reference
#t%3d0
http://smallbusiness.chron.com/difference-between-…
https://www.instituteforsupplymanagement.org/files…
