Situation: You are working for a startup motorbike company in Vietnam. Especially young people love your motorbikes, as they are an affordable and fresh alternative to more established brands like Honda and Yamaha. Your company is currently developing its first line of electric motorbikes. For this new line, you need many new components. One of the new components is a sensor to recognize battery capacity. One option is to produce the sensor in-house. Although your company has never produced this part before, your development and manufacturing departments are confident they can develop and produce it at a good quality. However, they also tell you that initially the sensor will be quite expensive due to the lack of experience of your company.

The alternative is to buy the sensor from a foreign supplier (that does not produce in Vietnam). You have never worked with this supplier before, but he is known for good quality. The products of the supplier are readily available, and 25% cheaper than the expected initial cost for in-house production. However, the supplier will only sell to you at this price if you agree to sign a contract for at least 100.000 sensors. This is the number of motorbikes you are hoping to sell in around 3-4 years.

Task/question: Your boss asks you for a meeting in which you should brief him/her on the advantages and disadvantages of making the sensors in-house vs buying from the foreign supplier. He/she also asks you to give a final recommendation, meaning that you have to make a choice between in-house production or buying from the supplier. Give reasons for your decision.