Assessing the Make option

Case Study: Supply Chain Analytics in Power BI

Nick Switzer

Analytics Lead

Internal cost estimates

Buy option uses quotes from suppliers.
Make option uses internal estimates.
Internal estimates need to have enough information for full cost
Cost per unit is similar to the "quoted cost"

Clip art of a woman in uniform holding a calculator and giving an ok symbol with her left hand

Internal estimate data - Cost per Unit

Part_Number	Cost_per_Unit	...
P1125	$8.066	...
P9091	$4.639	...
P1227	$3.22	...

Cost per unit includes costs for:
- Raw material
- Energy
- Labor

Internal estimate data - equipment data

Part_Number	Machine Model	Unit Capacity	Existing Capacity	Machine Fixed Cost
P1125	3D Printer79	304	1472	$5,000
P9091	Lathe23	13224	29,760	$1,000,000
P1227	3D Printer79	500	850	$5,000

Internal estimates include part specific data:
- Machine model
- Existing capacity
- Cost of a new machine
If production exceeds capacity, new investment is required.

Incremental equipment costs

Incremental costs: New costs introduced by our make or buy decision, not sunk costs that exist before the decision.

Incremental costs are included in the full cost
Sunk costs are NOT included in the full cost

Image of sunk cost definition in a dictionary, not fully legble

Pizza example

Woman eating a slice of pizza from a single pizza

Incremental Costs (included in decision cost):

Dough
Cheese
Sauce

Sunk Cost (do not include in decision cost):

Your oven

Pizza party example

Multiple pizzas and wine glasses

Incremental Costs (included in decision cost):

Lots of dough
Lots of cheese
Lots of sauce
Additional pizza oven

Sunk Cost (do not include in decision cost):

Your first oven

Other types of incremental make costs

Man wearing hard hat holding laptop in large production facility

Other incremental costs can include:

New facilities
Salaried labor such as engineering, production planners

Calculating investment required

Machines on-hand: 2 generic manufacturing machines icons

Machines required for production: 2 generic manufacturing machines icons with a red box around the three on the right

¹ Machine image is from: https://www.istockphoto.com/vector/set-line-icons-of-machine-tool-robotic-industry-gm540375844-96455873?phrase=manufacturing%20equipment%20icon

Equipment needed formula

Machines required for production: Two generic manufacturing machines icons with a red box around the three on the right

Machines Required to Purchase = Production Volume - Existing Capacity) / Unit Capacity

Equipment needed formula

Machines required for production: 2 generic manufacturing machines icons with a red box around the three on the right

Machines Required to Purchase = ROUNDUP (Production Volume - Existing Capacity) / Unit Capacity, 0)

Let's practice!

Case Study: Supply Chain Analytics in Power BI