Make-Or-Buy Decision at Baxter Manufacturing

¶ … Make-Or-Buy Decision at Baxter Manufacturing Company

For the manager at the Baxter Manufacturing Company, the decision of buying vs. internally making the software application is not an easy one. There are several arguments defending each possibility. In favor of buying for instance, the following are notable arguments:

- Purchasing a software application is less complex than making it; the company would just give the money to the software vendor and have the system installed in no time, whereas in the case of internal development, they would spend more money and the duration until completion would be significantly increased

- The Baxter Manufacturing Company would not be making the purchase from a random buyer. But from a long-term partner -- the Effective Management Systems (EMS)

The vendor would offer complementary services in the form of software installation, training to the BMC staff members, software maintenance, as well as several change possibilities

- By all accounts, the purchase of an already developed software application is less costly than the development of a new one

- The software purchased off the shelf has been more intensively tested and is as such more reliable than the internally developed one (Small Business Resource Center, 2006).

In favor of internally making the EMS, the following arguments are noteworthy:

- The company has had negative experiences with purchasing software (it is nevertheless true that they have learned form the respective experiences)

- The alternative of buying implies an enhanced dependency on the software vendor, who would have to install the application, offer training and continual support; if they are poor in doing this, the entire organizational system would be negatively impacted

- The company's Management Information System division has had some positive experiences with internally developing applications

- They could as such put their expertise to good use and create a software application tailored to the specific needs of the Baxter Manufacturing Company; this level of customization could not be obtained through a purchased application

- Considering that the software breaks down, the internal MIS would be more efficient in quickly repairing it, than the external vendor

- The support from the vendor implies that he will have access to confidential information on BMC

- The internally developed software is more flexible than the purchased one and can more easily be adjusted even after it has been instated

- The alternative helps save money by not subjecting to the demands of the vendor to purchase features and modules that would never be used (Small Business Resource Center, 2006).

Given the arguments in favor of both possibilities, the decision of the managerial team at Baxter Manufacturing Company is a difficult one. Nevertheless, constructing on the beliefs that the information system and infrastructure have to be able to efficiently support the achievement of organizational goals (Brown, DeHayes, Hoffer, Martin and Perkins, 2009), the most adequate solution for the time being seems that of purchasing the already existent software application from the long time partner EMS. The main argument in favor of this solution is the time efficiency it generates. The purchased application will be installed in the shortest possible time, whereas the installation of the internally developed software will only be possible in two years time. The company does not have two years to spend on waiting around for a better customized solution, as it is already threatened by the potential loss of customers due to an inadequate information system.

The second reason is that of the financial costs implied, in the meaning that the already developed application is more cost effective. Considering however that the managerial team finds it difficult to part with the perceived advantages of the internally developed solution, a compromise could be made in that of using the application from EMS for the time being, and based on the improved financial results it would generate, to construct a special budget, designated to support the internal development of a better fitted application.

This middle solution would only be possible if the company made a high return on investment and was as such able to increase its profits so it afforded to save more. This is however one of the toughest challenges of a small size entity -- its lack of sufficient financial resources. Despite the fact that they would identify the best solution, they would not be able to implement it due to financial constraints. Another shortage it has in relationship to the Fortune 500 companies is its reduced reputation. Even if the company is positively recognized within the community, foreign support would be impeded by the territorially restricted actions of the entity.