Certified Supply Chain Professional (CSCP) Practice Exam

What does make-or-buy cost analysis involve?

1. A comparison of all costs associated with transportation

2. An assessment of marketing costs

3. A comparison of costs related to making an item versus buying it

4. Evaluating supplier contracts

The correct answer is: A comparison of costs related to making an item versus buying it

Make-or-buy cost analysis is a strategic evaluation that helps organizations decide whether to manufacture a product in-house (make) or purchase it from an external supplier (buy). The focus of this analysis is to compare the total costs associated with both options. This includes direct costs, such as labor and materials for manufacturing, as well as indirect costs, such as overhead and opportunity costs. By performing this comparison, businesses can identify the most cost-effective option while also considering factors like capacity, quality, and time. The insights gained from this analysis guide decision-makers in optimizing resource utilization and improving overall supply chain efficiency. In contrast, the other options address different aspects of supply chain management. Transportation costs, marketing costs, and supplier contract evaluations are important elements in their own right but do not encapsulate the comprehensive cost comparison that is central to make-or-buy decisions.