The question asked in this Post's title may not, after first reading it, make much sense. Don't worry, things will clear up.
For openers, it's an important question because its answer (if we can figure what it's asking) can make a big difference. It's the same sort of question as, "Can a firm's capital structure make a difference?" As we learned looking at Southwest Airlines, the answer is, "You bet!"
Before figuring out the question, and then what to do with the answers, here are my lecture notes and PowerPoint slides for the Production and Operations Management "story":
Before getting to the main event, here are some things to look for in Chapter 9 of your textbook (Chapter 10 gets discussed separately in the Human Resources materials).
The site selection process in Section 2 can be de-emphasized. In Oregon, state-wide and local land-use rules govern where industrial facilities can be located.
How assembly lines and manufacturing plants are designed and built is a highly-specialized field (Section 3). Consider hiring an engineer who graduated from Oregon State to help you out.
Invest some time and energy in Section 4: Production Control, especially Inventory Control. This is the essential stuff. Know the three inventory classifications: raw materials, work-in-process (sometimes called work-in-progress) and finished goods. Understand what is included in each inventory type and their (direct and indirect) costs. Think about the timing of inventory deliveries. Consider also how to "control" the availability and quality of inventory components.
Some key terms to know include (1) Just-in-Time (JIT) inventory theory, (2) "Push" versus "Pull" production strategies, (3) Carrying Costs, (4) Economies of Scale, (5) Break-even Point, (6) Fixed versus Variable Costs, (7) Supply Chain and (8) What it means to take a "Systems Approach."
The question (Do we Make it or Buy it?) was first asked in the early-1930s by a young (he was about 20 years old at the time) English economist named Ronald Coase. Mr. Coase was a graduate student at the London School of Economics (which also claims Mick Jagger of the Rolling Stones as an alumnus) who won a scholarship to come to America and study its bustling manufacturing industries.
His research consisted of asking businessmen a very simple-sounding question, "Why do you do what you do?"
Answering this question requires understanding why firms sometimes choose to produce their own inputs (you might remember this as "vertical integration") while other times use the market (buy their inputs from independent suppliers).
In other words, should we make what we make (control all necessary resources and manufacture all or most of our inputs) or buy what we make (purchase at market prices from third-parties the needed inputs)?
Professor Coase published his question and analysis of the answers he got in 1937, but no one paid much attention to his article until the mid-1980s. That was when the heretofore unchallenged American manufacturing industry began feeling pressure from foreign competitors and its productive edge slipped.
Professor Coase's insight from 50 years earlier explained that efficiency does not increase continuously or automatically with a firm's size, but that the opposite may happen instead.
Unlike most economists, Professor Coase suggested the "black box" that is a firm is a complex web of transactions that impose a highly variable mix of direct and indirect costs depending management's choices whether to "buy-or-build" their productive inputs.
For discovering this theory, Professor Coase was awarded the Nobel Prize in 1991. For us, we'll look at two industrial giants - Ford and Toyota - and study how the decisions each made concerning the buy/build question has shaped what they are today.