Make-or-Buy Decision
Candlefocus EditorWhen considering this type of decision, the following factors should be taken into account. Firstly, the costs of production directly associated with making a product in-house are akin to the costs of production associated with buying the item externally. Companies must also consider potential savings and economies of scale when deciding whether to make, buy, or outsource production of a product. Secondly, the company must reflect on how its company culture, vision, and model are affected by the external supplier. That is, will the company benefit from an unrestricted environment to create products, or the cost savings and compliance advantages associated with an external supplier?
Other considerations such as quality control, production lead time, and stock obsolescence are also important. Quality control with in-house production can provide the assurance of traceability and better, higher-quality controls, while outsourcing production can help the company improve the speed of their product delivery. Finally, businesses must consider their resource availability and the velocity of change. Does the company have sufficient manpower to produce, or would it be more cost-effective to outsource for efficiency and cost savings?
Once a company has taken all aspects into account, it should be able to make a clear decision of whether making or buying a certain product is the most cost-effective and beneficial method. The make-or-buy decision is a complicated but essential process that must be carefully thought out when considering production resources. By taking all the relevant factors into consideration and running a cost-benefit analysis, companies can determine which path is best for their needs.