5 Key Considerations to Have in Make-or-Buy Decisions

In our previous edition of the Procurement Leaders Playbook, we discussed the 5 ways Political Factors Influence Procurement. This week, we’re diving into a more practical aspect in procurement decision making—Considerations to Have in Make-or-Buy Decisions.

Make-or-buy decisions are crucial in determining whether a company should produce a product in-house or outsource it to a third party.?

These decisions impact not only cost considerations but also control over quality, intellectual property rights, capacity, and speed of delivery.?

Here are 5 key considerations to have in make-or-buy decision:?

#1 - Consider Cost Implications

Naturally, cost is often the foremost consideration in the make-or-buy decision process. It’s crucial to conduct a thorough cost analysis that includes not just the immediate expenses but also long-term financial impacts

When considering making in-house, include the costs of production setup, ongoing manufacturing, labor, and quality control. For buying, consider the purchase price, ongoing costs, and potential volume discounts.?

#2 - Consider Quality Control

Quality can make or break your product's reputation in the market. Making a component in-house gives you complete control over the quality and the ability to react quickly to any issues.?

Outsourcing, however, could potentially lead to compromises in quality if not managed correctly. The decision should include considerations of the supplier’s credibility, their quality standards, and your ability to influence these factors.

#3 - Consider Expertise and Specialization

Ask yourself, do you have the necessary expertise to produce the part or service at a level that meets or exceeds what’s available in the market??

If not, outsourcing to a specialist can bring in the expertise that you lack internally, often leading to better outcomes.?

However, developing in-house expertise can be a strategic investment, fostering innovation and providing a competitive edge.

#4 - Consider Flexibility and Speed to Market

The ability to respond swiftly to market changes can be a significant competitive advantage. Producing in-house generally offers greater control over production timelines and can be quicker to scale or adapt to demand fluctuations.?

On the other hand, established suppliers might have better capabilities to deliver large volumes more quickly or to adapt to changes due to broader experience or resources.

#5 - Consider Strategic Positioning

How does the decision align with your company’s strategic goals? Some companies choose to outsource to free up internal resources and focus on core competencies, while others might insource to protect proprietary technology or to build a strategic asset.?

Consider how the make-or-buy decision will impact your strategic positioning and long-term goals.

Bonus Tip: Risk Management

Consider the risks associated with both making and buying, including supply chain reliability, compliance risks, and the potential for cost overruns or delays. Managing these risks might tip the scales in favor of one option over the other.

Check Out Our Upcoming CIPM Session!?

If you’re interested in learning more about how to effectively consider make-or-buy decisions in procurement, enrol into our upcoming CIPM session to specialize in that and much more.?

Led by Dr. Graw, with over 20-years of experience in supply chain, this is one of the most leading procurement certifications in the industry.?

Dr. Graw in supply chain management, brings a range of knowledge and insights that have dramatically enhanced the understanding and capabilities of thousands of procurement professionals.?

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