Make or Buy

We compare the advantages and disadvantages of in-house production and external procurement.

In-house production or external procurement

Make or buy

Manufacturing companies are coming under increasing pressure to reduce their own production costs in order to keep up with competitors in the price war. As a result, companies are often confronted with “make or buy” decisions because suppliers in Eastern Europe, China or other low-cost regions promise significant price advantages that many operations in industrialized countries cannot offer.

Thus, companies are faced with the decision about their ideal vertical range of manufacture in production and assembly or are considering outsourcing services, such as selected logistics services.

Structuring the influencing factors to make the right decision

What is our understanding?

Make-or-buy (MoB) is a decision between in-house production and external procurement. It is important to take into account a long-term strategic orientation and not to focus exclusively on short-term cost advantages. In addition to the financial aspects, other influencing factors such as quality, the risk of know-how loss or the degree of flexibility in adapting processes are taken into account in a strategic make-or-buy decision. Moreover, MoB decisions are not limited to the production area alone, but can also include logistics services, IT services or other services.

What are the reasons to deal with this topic?

In recent decades, the focus has increasingly been on concentrating on core competencies and reducing vertical integration. However, before a company abandons in-house manufacturing, it should objectively determine its core competencies and strategically evaluate them via a portfolio analysis. However, comparing procurement and manufacturing costs alone will not lead to long-term success for your company and the entire supply chain. That is why the fundamental decision to manufacture in-house (make) or outsource (buy) cannot be evaluated on monetary factors alone; rather, a long-term strategic decision is required.

We support you in the Make or Buy decision

  • Total-Cost-of-Ownership-Analysis
  • Identification of potential outsourcing products
  • Core competence analysis
  • Bottleneck identification
  • Risk analysis
  • Quality requirements analysis

Factors of success

Existing products are analyzed for various characteristics to identify potential candidates for outsourcing. In addition to factors that can be assessed in monetary terms, e.g. using a total cost of ownership analysis, soft factors such as quality requirements are also taken into account.

Another step in a make-or-buy decision is to examine current and future bottlenecks within their production. In addition, we check which risks can occur when outsourcing and which products belong to your core competencies so that these can continue to be kept in-house in the future. We would be happy to support you with our experience in this area in deciding whether to manufacture in-house or outsource.

What are the biggest mistakes in the make or buy decision?

Only the factors that can be valued monetarily are evaluated, other factors are disregarded.

Make or buy

Take away

ifp consulting supports you in deciding which products should be manufactured in-house or sourced externally in the future.