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Sub: Make or Buy Analysis

Mrs. Nalini Kak, FA & CAO, Central Railway


 " 1.Objective:

With a view to review the benefits of In house manufacturing activity, all the workshop accounts units were advised to carry out studies of various items manufactured in the workshops to review the costs of manufacturing and compare the same with the existing purchase price of the items. The idea behind the exercise was to provide information to workshop management to take 'Make or Buy' decisions


Accordingly studies have been carried out by WAOs of PR, MTN, JHS & NKRD in the current year. The findings have been tabulated in the Annexure enclosed and are summarised below.

-- Out of 47 items reviewed, it would bbe Rs. 1 crore cheaper to purchase 41 items from trade instead of manufacturing them at our workshops;

- At MTN: 22 items - possible savings oof Rs.22 lakhs of which savings of Rs. 19 lakhs pertain to 7 items.

- At PR: 20 items - possible savings off Rs. 45 lakhs of which savings of Rs. 43 lakhs pertain to 10 items.

- At JHS: 4 items - possible savings off Rs.16 lakhs pertaining to 2 items

- At NKRD: 1 item - possible savings oof Rs. 17 lakhs.

-- CWMs have been advised to target initially for discontinuing manufacture of the top items where there is likelihood of achieving heavy savings quickly.

There are only 5 items in which the cost of manufacturing is less than the cost of purchase. Hence it would be advisable to manufacture the entire quantity in the workshop itself. However if the workshop is falling short of capacity to manufacture the entire quantity then while finalizing the purchase we may negotiate with the supplier to bring down his rates to match the manufacturing cost of Railways

-- The quantities adopted refer to work orders issued against the current AAC of the items. In case full AAC quantities are purchased instead of being manufactured, the savings would be much more.

3.Methodology adopted

-- Cost of manufacturing: For calculatiing the cost of manufacture the various elements taken in account are, Labour, Stores, On cost charges, Proforma on cost etc. as prescribed in Mech. Code. -- Purchase cost has been obtainedd from the last available purchase order from the COS's office. Why purchases had been resorted to for these traditionally manufactured items is to be looked into.


-- Immediate action should be taken by CWMs concerned to discontinue manufacturing activity of the identified items: staff so rendered surplus to be identified for redeployment.

-- Similar review to be carried out forr all other manufactured items.

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