Framework

Make-or-buy decision

The question it answers

When an operations or purchasing manager weighs making a component or service in-house against buying it in, what should count besides cost?

Origin
Lysons and Farrington (2020)
Diagram type
Comparison table
Level of analysis
Firm
Topics
Strategy & leadershipSupply chain & operations
Chess knight on a glass compass, icon for strategy and leadership

Diagram

Make-or-buy decision

CriterionMakeBuy
Sensible whenSuppliers are poor, technology must stay secret, spare capacity exists, core capability to keepCheaper, short of capacity, a better supplier exists, flexibility needed
AdvantagesControlLess capital, flexibility, focus
DrawbacksUpfront capital, hard to change directionLoss of control, dependence, loss of technical edge
TestCompare the total cost of both optionsThen add strategic factors

Pitfalls

Pitfall

Comparing only purchase price with unit cost and forgetting transport, stock, import duty and administration.

Sources

References

Listed A–Z by author surname, Harvard style. A source with a DOI links to https://doi.org/…; one without links to its page or says plainly that it has no DOI.

  1. Lysons, K. and Farrington, B. (2020) Procurement and Supply Chain Management (10th edn). Harlow: Pearson.No DOISource page