A multiple-criteria decision methodology for the make-or-buy problem

This paper develops a multiple-criteria decision analysis methodology for the evaluation of make-or-buy strategies. The methodology represents a radical departure from existing frameworks by executing a dynamic, multi-attribute, and multi-objective performance evaluation of make-or-buy alternatives. The methodology contains a model that comprises four objectives: maximization of strategic competitive performance; maximization of managerial performance; minimization of sourcing risks; and maximization of financial performance. The financial objective is measured using the net present value. The attributes for the other objectives are measured using the related concept of net present qualitative/operational flow analysis. These objectives and their attributes are traded-off using composite programming, resulting in a rank ordering of the make-or-buy alternatives. In order to generate the measures of criteria importance, the model applies the analytic hierarchy process. However, since the measures are assumed to be time-dependent, the proposed methodology utilizes the limiting power of stochastic matrices to generate the set of criteria priorities over the planning horizon. The proposed approach has been designed to be applicable in manufacturing as well as in any other function of the Value chain. A case study is used to demonstrate the application of the model.