Managing Information Technology

Case Study III-2 • A Make-or-Buy Decision at Baxter Manufacturing Company 447

He may or may not make the changes that you want,

and in fact he may make some changes that you do not

want. If you do not expect the system to change and it

is a common system, you probably should purchase it.

For example, one general ledger system is just like

any other, and they haven’t changed in 20 years, so

you should purchase this application. But we are

continually changing things out in the shop, and if we

build our own systems, we can change them when

we need to.

Finally, we have demonstrated that we can

build and successfully install our own systems, but

our record with purchasing and installing manufac-

turing systems is dismal. The EMS proposal may

fulfill our needs, but then again it may not. We failed

twice in the past because the system we purchased

did not fit our needs. Why take that chance again?

“You seem very concerned that the EMS system

might not suit our needs or that our needs might change,”

Baxter replied. “Could we modify this system if it does not

suit our needs?” Collins said:

Because we will not have a source-code version of

the software, it will not be feasible for our program-

mers to modify the functionality of this system.

However, we can write interface software to change

the form of the system’s input and output.

When Baxter noted the cost and time differences

between purchasing and building the system as estimated

by Moore, Collins replied:

The figures Lucas quotes are very misleading. The

purchase price is but a part of the total cost of buy-

ing, installing, and maintaining the software. To be

sure you are choosing software that truly meets your

needs, you must put a substantial effort into defining

your needs and evaluating each candidate package

against those needs. One of the major weaknesses of

the present proposal is that this process of defining

needs and evaluating possible packages has been

completely ignored. In my opinion we must go

through this process before buying any packaged

software, and this will affect both the proposed cost

and how long it will take to install the system.

Another cost of purchasing a system is the

cost of modifying your existing systems so that they

can feed data to or receive data from the purchased

package. If the systems that must be interfaced with

the purchased systems are also purchased systems

that you cannot modify, you may have to create

in our factory so we can devote our energy to making

the new system successful.

Collins’ Views

Baxter also talked with Collins, who argued that BMC
should continue its process of building the manufacturing
systems that it needed. He estimated that the needed sys-
tems could be completed in about two years at a cost of
around $420,000—$220,000 for outside help (including
training his people in new development tools) and
$200,000 in internal costs.
When Baxter asked Collins why BMC should not
purchase the EMS software, Collins replied:

First, the EMS software is far more complicated than

we need. For most general manufacturers each part

may require six operations on six different types of

machines, and each part has a routing that is differ-

ent than other parts. Then several parts may be

assembled into a subassembly, so you have two- or

three-level bills of material. We typically take a coil

of steel, stamp out the part, clean it, box it, and ship

it out, so both our routings and our bills of material

are very simple, as is our production process. The

EMS system is designed for much more complex

manufacturing.

Second, we have had little or no experience

with computerized production systems. Does it

make sense for us to try to jump to a very complex

and sophisticated system like the EMS proposal?

Lucas has a very superficial understanding of this

software package, and he doesn’t know any of the

details of how it will work. Therefore, he has no idea

of the difficulties that his people will run into in

adapting to this complex package. It will require

them to do many tasks that they have never done, or

even considered doing. And they don’t need this

complexity. Wouldn’t it be better to build our own

systems that correspond to where we are on the

learning curve and plan to upgrade them as we

progress in our understanding of our systems needs?

Third, it is likely that the system does not fit

the way we are running the business. Do we change

the system or do we change how we run our busi-

ness? We probably can’t change a purchased system,

so we would have to change the way we run the busi-

ness. Do we really want to do this?

Fourth, we are constantly changing our manu-

facturing facilities and processes, and they may be

unique to our business. If you purchase a package, you

are at the mercy of the vendor to make changes in it.