Business Structures, Make or Buy Decisions, Production Constraints

This assignment explores the distinctions between formal and informal organizational structures, emphasizing their impact on business operations. It delves into the factors influencing make-or-buy decisions for inventory, including cost analysis, resource availability, and vendor selection, providing a comprehensive understanding of the strategic considerations involved. Furthermore, the assignment analyzes various production constraints such as cash flow management, competition, company culture, delegation, and market changes, and discusses their potential to impede organizational growth. The analysis uses Adidas as a case study to illustrate these concepts, offering practical insights into business development and strategic decision-making.

1. How the formal approach (using structure, systems, processes)
differs from the informal approach (relationships, networks,
unwritten rules) and analyse it.?
Introduction:
There are key differences between formal and informal organisations:
Formal organisations are focused towards achieving specific goals.
Informal organisations are more focused towards human psychological
needs. The organisational structure of Adidas refers to the way
management levels are established, and the way decisions are made and
implemented to achieve the desired goals pf the organisation. As a
business owner or company leader, understanding the differences
between a formal and informal organisational structure can help you
make the best decision for your business.
The main differences between an informal and formal organization are
levels of structure and hierarchies that determine how members interact.
Formal organisations are more structured and rely on authority based
upon chains of command. Informal organisations do not require
hierarchies of authority or structured internal processes. They are not
formed in order to reach specific goals like a formal organization.
Formal Organisational Structure Elements:
In a formal organisational structure, the management explains everything
to their employees and answer all the questions their employees have
and clear their doubts and make sure that their employees have now
understood about the task or the work assigned to them.
Formal structure organisations usually have a hierarchical pyramid
structure with a company’s CEO and senior managers at the top; mid-
level managers in the middle; low-level managers at the bottom. Staff
employees are expected to implement decisions and processes made at
the levels above them, and they are not usually ask for their opinions or
ideas about how the company should operate.
Informal Organisational Structure Elements:
In an informal organisational structure, the business doesn’t operate
under the commands or guidelines given by the management. Under this
structure, the business operates by a system developed by the employees
who have proven effective. This structure relies on relationships forged
between staff members, cooperation between teams and communication
that focuses on achieving shared goals.

Informal structures are unique for every company, because they are
based on the personalities of the employees and collaborative techniques
developed over time.
3. Explain the factors which we need to consider before taking
a decision about to make (In house) or Buy inventory from
external supplier.
Solution:
The decision as to whether to make vs. buy a product is based on a
variety of factors, including the cost of either option, whether the product
is available from other vendors, the expertise and resources your
business has when it comes to manufacturing, and whether you have
enough cash to make a purchase.
Some of the factors are listed below which we should keep in
mind before we take a decision of make or buy :
 Benefits of the "Make" Strategy:
Often, the decision to make your products comes naturally, based on the
product Adidas is selling. If, for instance, Adidas has manufactured an
item that doesn’t exist anywhere else, so at that point Adidas will have no
choice but to make it. This is one of the biggest benefits of the make
strategy – you can create a product that can’t be bought anywhere else.
Adidas even doesn’t have to worry about scheduling or suppliers falling
through on their end of the deal. Adidas is more in control of everything,
the management will know early on if Adidas won’t be able to fulfil the
current orders on time. The business will also have an ongoing
understanding of whether it’ll be able to sustain current production and
when it’ll may need to scale resources to keep up.
 Benefits of the "Buy" Strategy:
One of the biggest advantages of the buy strategy is being able to find a
manufacturer that has expertise in a particular type of product. This
manufacturer may even have been creating these products for years,
allowing for all of the bugs to be worked out in the early days. Adidas will
also benefit from the facility and employees the manufacturer already has
in place, which will give Adidas the advantage of having those resources
without having to pay ongoing costs for them.
 Crunching the Numbers:
Before the management of Adidas finalise the make-or-buy decision, the
account department needs to do a little number crunching. It isn’t
enough to look at the cost to manufacture versus the cost to buy. The
accountant needs to see, long-term, just how much either option will cost.
One of the best ways to do this is through a break-even analysis. This is
done using a simple formula: Break-Even Point (Units) = Fixed Costs ÷

(Revenue per Unit – Variable Cost per Unit). That will give the accountants
the break-even point.
Using this formula, the accountant would do a make-or-buy analysis and
add up all fixed costs to manufacture the item. Those are the costs that
will not change, such as the fixed wages you pay. The business also
determine the revenue for each item produced and the variable cost per
unit, which are the expenses that can change, such as the cost of parts.
This tells the management how many units they’ll need to manufacture to
break even on those costs.
 Costs to Manufacture:
Although the management will need capital to purchase products to get
Adidas’s business started, and would also require some startup to make
items. First, there are the costs to purchase and store items, materials
and products until they’re sold. If adidas can rent this space at a set fee,
this will be one of Adidas’s fixed costs. Adidas would also have to pay
anyone who will help with making the items, as well as the equipment the
business would need to get started.
Variable costs include the money Adidas will spend on parts and
materials. Even if the business is making an item that has never been
made before, the fabric, plastics, hardware and other materials that will
make it up are already in existence. Chances are that the cost of those
items will vary from one month to another, especially if the customers
demand fluctuates.
 Finding a Vendor:
If Adidas chooses to go with purchasing after doing make or buy analysis,
the next move is to find a good vendor. The management would want to
look through different vendors’ inventories to compare quality and
prices.If the management is very specific about what they want, though,
they’ll need to search for manufacturers who makes exactly what meets
Adidas’s demands. So in this case the management should be flexible
about what they want so that they can find a vendor easily.
4. Briefly discuss the impact of different constraints on
production which could prevent the growth of the organization in
terms of sales and production.
Solution:
Below I have mentioned some of the constraints which can have a
negative impact on Adidas’s business and it can even prevent the
Adidas’s business to grow in terms of sales and production:
 Cash flow management:
Cash flow problems are the second most common reason why Adidas
goes bust,. Owners have to spend money to make money during a
growth period, but this concept can quickly get out of control and leave
the business in a precarious position.

The Finance department of Adidas should manage cash carefully during
these times. They should Turn to the channels that produce consistent
sales and work to maximise their contributions to the business’s bottom
line. Negotiate favourable payment terms with partners and vendors too.
 Responding to competition:
A funny thing happens when Adidas’s business iis successful--others
recognise the opportunity and enter the industry. Many small business
owners are unprepared for the realities of fierce competition, and they
quickly lose their way in an attempt to respond.
Adidas Keeps focus on what their business does best and continues to
communicate their unique value proposition to prospects and customers.
 Nurturing a great company culture:
Adidas’s culture is affected by everyone involved with in organization. As
the business grows and more people come into the company's orbit, it
becomes more difficult to exert control over to Adidas’s culture and the
business run the risk of having it derailed.
To do this well, let Adidas’s values guide all of decisions and hire great
people who will embrace their role as champions of the organisational
culture. With allies on the business’s side at all levels of the business’s
culture will be allowed to grow and flourish.
 Learning when to delegate and when to get involved:
There are times when entrepreneurs need to get personally involved in
specific decisions, such as big-picture strategic planning and hiring for key
positions. Then there are times where it is important to delegate and trust
that Adidas’s managers will make the best decision for their team and the
company. Every business owner must learn to get a feel for these
situations and step in when needed without burdening their leadership
team.
 Keeping up with market changes:
If Adidas can operate in a sector that experiences frequent upheaval,
then Adidas’s management has to be prepared for constant change.
Internalise the idea that disruption is the new normal and work on training
its employees to be agile in the face of uncertainty.
 Deciding when to abandon a strategy:
Sometimes marketing channels that seemed full of potential don't pan out
and new product lines don't catch on as anticipated. Failures are an
important part of Adidas’s business growth and owners must train