Final answer:
A firm's 'how to buy' strategies encompass decisions on make-or-buy, inventory sizes, insourcing vs. outsourcing, systems and processes, and quality levels. These choices affect production costs and strategic positioning within the competitive market structure.
Step-by-step explanation:
When firms consider how to buy for their operations, they must make strategic decisions regarding various elements. These involve whether to make or buy the product, determining the size of inventories to maintain, choosing between insource or outsource production, setting up efficient systems and processes, and maintaining the appropriate level of quality. Deciding on these factors is crucial as they directly impact the cost of production and the firm's overall competitive strategy.
For instance, a make-or-buy decision affects a company's capital investment and control over production, while outsourcing can leverage specialized external resources but might introduce risks related to quality and supply chain continuity. Similarly, managing inventory levels reflects a balance between storage costs and the need to meet demand swiftly. The design of systems and processes affects operational efficiency, and quality level decisions involve considerations of customer satisfaction and brand reputation.
All these decisions are shaped by a firm's assessment of its production and cost conditions, as well as the market structure and the competitive environment it operates within, such as market power, product differentiation, and barriers to entry.