In 'Make or Buy' decision, it is profitable to buy from outside only when the supplier's price is below the firm's own

To determine whether it is profitable to buy from outside or make internally, a firm needs to compare the supplier's price with its own production costs. Here are the steps to analyze the 'Make or Buy' decision:

1. Identify the firm's own production costs: Calculate all the costs involved in producing the product or service internally. This includes direct costs such as raw materials, labor, and overhead costs.

2. Obtain the supplier's price: Gather information on the price offered by external suppliers for the same product or service. This can be done through market research, contacting potential suppliers, or requesting quotes.

3. Compare the costs: Compare the supplier's price with the firm's own production costs. If the supplier's price is lower than the firm's production costs, it may be more profitable to buy from outside. On the other hand, if the firm's production costs are lower than the supplier's price, it may be more cost-effective to make the product internally.

4. Consider additional factors: Apart from costs, there are other factors to consider in the decision-making process. These may include quality control, reliability of the supplier, lead times, transportation costs, and the firm's core competencies. Evaluate these factors to make a well-informed decision.

5. Make a decision: Based on the cost comparison and consideration of other factors, make a decision on whether to buy from outside or produce internally. If the supplier's price is below the firm's own production costs and other factors align, it may be profitable to buy from outside.

Remember, the 'Make or Buy' decision is not solely based on price. It requires a comprehensive analysis of costs, quality, and other relevant factors to determine the most profitable option for the firm.