Which of the following is a qualitative factor of a make-or-buy decision? a. variable manufacturing costs. b. avoidable costs. c. long term relationship with suppliers. d. opportunity costs.
The correct answer and explanation is:
The correct answer is c. long term relationship with suppliers.
In a make-or-buy decision, the decision-maker evaluates whether it is more cost-effective to produce a good or service in-house or to purchase it from an external supplier. While quantitative factors such as variable manufacturing costs, avoidable costs, and opportunity costs are typically considered based on measurable financial data, qualitative factors involve aspects that are more subjective and harder to quantify.
One important qualitative factor is the long-term relationship with suppliers. This refers to the strategic value of maintaining good relationships with external suppliers. A long-term supplier partnership can provide benefits such as reliability, preferential pricing, and flexibility in future negotiations. Furthermore, a positive relationship can help secure priority in terms of product delivery, especially during periods of high demand or supply chain disruptions. A reliable supplier relationship may also contribute to operational stability and efficiency, making it a key qualitative factor in the decision-making process.
In contrast, the other options are typically associated with quantitative factors:
- Variable manufacturing costs (option a) refer to the costs that change with the level of production and are a clear quantitative factor.
- Avoidable costs (option b) are costs that would not be incurred if a particular course of action is chosen, and these are also quantitative.
- Opportunity costs (option d) represent the cost of forgoing the next best alternative, and it is another quantitative factor used in decision-making.
In sum, while costs and financial considerations are important in a make-or-buy decision, the qualitative factor of maintaining a long-term relationship with suppliers can also play a crucial role, especially when looking at strategic business relationships beyond just immediate cost considerations.