Capacity and Logistic Cost Considerations
Sudesh Bhikha, Member
If your facility is running below capacity, then it would be advisable to factor in overall cost reduction to all products by increasing utilization
of internal resources compared to net cash flow outflow from buying the product externally.
Your fixed cost internally (for example depreciation) can be spread out over more products if you manufacture the product internally, compared to buying the product outside.
There are other hidden cost issues that you need to factor when buying a product, like qualification cost
of the product at supplier site, quality monitoring
, logistic cost
, additional inventory for intransit time