Baxter Manufacturing Company (BMC) is a leader in deep-drawn stampings and it has been in the market for decades. However, the recent technological developments in the industry have necessitated the acquisition or in-house development of an information system that enhances the performance of the company. The key management personnel at the company have been provided with the options to buy the software from an external vendor or to develop it within the company. The following paper will evaluate both the options and endorse a favorable option. Background
BMC needs a manufacturing software system in order to remain competitive within the industry and some of the personnel in the company are of the opinion that Effective Management Systems, Inc. (EMC)’s Time Critical Manufacturing package is the solution for the company’s software needs. On the other hand, other individuals are of the opinion that development of in-house software will be a better decision in favor of the company. The software can be acquired for an upfront payment of $220,000 and yearly maintenance contracts can be acquired for $55,000 per year.
The software can be modified in accordance with the needs of the company and the labor for this task will be billed at $60 per hour. The benefits associated with this option are; it can be implemented within 6 months as compared to 2 years time required to develop internal software, it costs less than the development of software internally, EMC is a well known software vendor and the software is reliable, and it will be completely tested and operational software.
The disadvantages of this option are; there is very limited flexibility in the software acquired by the external vendor, the software is highly complex however the requirements of BMC are simpler, there is risk of failure involved in the implementation of the new system and extensive training of staff members will be required to ensure that they are able to operate the new system effectively. On the other hand, internal development of the software will cost $420,000. There are numerous benefits attached to this option i. e. he software will be developed exactly in accordance with the needs and requirements of the company, the internal system will have a user interface that will be known to the existing staff members therefore there will no need for extensive training, there will be no issues in data conversion and the operations of the company will not be disrupted. However, the disadvantages of the internal software are; it will take 2 years to develop the software, it costs more than the external software, and there are higher chances of errors as the internal developers are not as experienced as the external vendors.
Discussion Both the options available to the company have some advantages and some disadvantages. However, the main factor that will help in making the decision is the time taken by both the options. Since other firms in the industry have already implemented new software, BMC cannot wait for a long span of time if it is to strengthen its position in the market. From this perspective, the acquisition of the software from the external vendor is a more favorable decision.
Although the user interface of the software will be complex, sufficient training of the staff members will help in the proper use of the software. Conclusion After the evaluation of both the options available to the company, it can be concluded that the company should buy the software instead of making the software internally. The rationalization behind this decision is the rapid implementation of the software in a comparatively shorter span of time.