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

 in the right quality and quantity,

 at the right time

 in the right place

 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.

 Background Review:

 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.
 Negotiation:
price,
availability,
Delivery schedules.

 Fulfillment:
Supplier preparation,
delivery,
Payment.

 Execution (installing):

 Maintenance:
Types of procurement decision:

 MAKE

 BUY

 OUTSOURCE
Option 1: MAKE:

 Developing a custom-built IS,

 Specific to the requirements of the

organization,

 with the help of in-house IT department

FACTORS INFLUENCING “MAKE”
DECISION:
 Cost considerations

 Desire to integrate organization’s operations

 Direct control over Information System

 Better quality control

 Information flow design secrecy is required

 Control of devlopment time

 Political, social or environmental reasons

Elements of the "make" analysis
include:

 Direct development costs

 Incremental managerial costs

 Any follow-on costs stemming from quality

and related problems

 Incremental capital costs

Option 2: buy

 Purchasing a suitable or Tailor-made IS

 After selecting an appropriate vendor.

FACTORS INFLUENCING “BUY” DECISION:

 Lack of expertise

 cost benefit considerations

 Small-volume requirements

 Limited resources or insufficient capacity

 Brand preference
Cost considerations for the "buy"
analysis include:

 Purchase price of the requirement

 Installation costs

 Receiving and testing costs

 Acquiring costs

 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” “Buy”

• Large investment required to • Higher risk of loss of intellectual

establish infrastructure, capital
technology and personnel • Costs savings shared with vendor
• Operational complexities of • Level of control dependent on
support functions distract from vendors’ capabilities
core activities
• High systems/technology
maintenance costs
• Scale advantages limited by
company volume
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
 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

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

 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.

 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

 Loss of control
 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.
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example
 IT majors bag $1.5-billion outsourcing
deal from British Petroleum(world’s third-
largest 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

 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.

 Companies can focus on other revenue,

management and customer services.

 The main goal is to make the entire process

more efficient.
E-procurement affects business by :

 Making the process of transactions simpler.

 A strong focus on management, organization

and managing your assets.

 A strong focus on purchasing and using

resources, dealing with vendors, reducing loss
and improving system.
Software Vendor Selection
 Technical expertise

 Domain knowledge

 Adequate manpower

 Project management skills

 Long existence in the field

 Extra skills [e-biz & workflow]

THANK YOU

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