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 manufacturing costs in order to keep up with competitors in the price war. Therefore, companies are often confronted with “make or buy” decisions because suppliers in Eastern Europe, China, or other low-cost regions promise considerable price advantages that many companies in industrialized countries cannot offer.
Thus, companies are faced with deciding about their ideal vertical range of manufacture (link) in production and assembly or consider outsourcing services, such as selected logistics services.
We support you in the decision to make or buy
- Total cost of ownership analysis
- Identification of potential outsourcing products
- Core competence analysis
- Bottleneck identification
- Risk analysis
- Quality requirements analysis
Structuring the influencing factors for the right decision
What are our objectives?
Make-or-buy (MoB) refers to a decision between in-house production and external procurement. It is essential to consider a long-term strategic orientation and not just focus on short-term cost advantages. In a strategic make-or-buy decision, in addition to the financial aspects, other influencing factors such as quality, the risk of loss of know-how or the degree of flexibility when adapting processes are taken into account. In addition, MoB decisions are not only limited to the production area but can also include logistics services, IT services or other services.
Why is this topic so important?
Over the last few decades, the focus has increasingly shifted to concentrating on core competencies and reducing the vertical range of manufacture. However, before a company gives up in-house production, it should objectively determine its core competencies and strategically evaluate them using a portfolio analysis. However, the mere comparison of procurement and production costs does not lead to long-term success for your company and the entire supply chain. That is why one cannot assess fundamental decisions about in-house production (make) or external production (buy) solely on the basis of monetary factors; instead, a long-term strategic decision is required.
Factors of success
Existing products are analyzed with regard to various characteristics in order to identify potential candidates for outsourcing. In addition to factors that can be assessed in monetary terms, which can be assessed using a total cost of ownership analysis, for example, 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 your production. We also check which risks can arise when outsourcing and which products belong to your core competencies so that they can continue to be kept internal in the future. We are happy to support you with our experience in this area when deciding whether to produce in-house or outsource.
Was sind die größten Fehler bei der Entscheidung Make or buy?
Only factors that can be assessed in monetary terms are assessed; further factors are disregarded.
Make or buy
ifp consulting supports you in deciding which products should be manufactured in-house or purchased from third parties in the future.