Lean Manufacturing Outsourcing
Make or Buy Decision Making: Broader
Lean Manufacturing Outsourcing
OK, cost and capacity are essential. But what are the other
considerations likely to influence the ‘make versus buy’ decision? In order to
make the right call, it’s important to have a complete picture.
In-house Manufacture: Reasons for Making
- Quality control. Ensure all items meet your spec and
remain consistent over time.
- Reduced production costs. Potentially lower costs as you
don’t have to include a margin on each part produced, unlike
- Guarantee reliable supply. Make sure you have enough parts
to meet your demand.
- Maintain critical skills, knowledge and expertise within
your business. Particularly if this contributes to your competitiveness or
unique selling point.
- Protect intellectual property and other innovations that
- An opportunity to innovative through R&D and therefore
differentiate yourself. Production
improvements (and resultant cost reductions) include better fitting and
assembly methods, jigs and fixtures.
- Get rid of unsuitable, unreliable or troublesome
- Retain staff during periods of low demand. Avoid layoffs,
thereby retaining skills and being prepared to rapidly exploit a more
buoyant market in the future.
- A buffer against rises in supply costs and avoid being at
the mercy of supplier collusion.
In-house Manufacturing Advantages - Practical Example
Outsourced Manufacture: Reasons for Buying
- Obtain functional or technical expertise beyond your
- Speed – suppliers may be able to produce parts far quicker
than you could ever dream of.
- Inadequate internal quality control or processes to
produce items to the required specification.
- Lower acquisition cost when compared to internal
- Free up capacity, space and resources.
- A patent may protect certain components; therefore you
can’t legally reproduce them.
- Free up managers and others to get on with core business.
- Ensure alternative component sources to guarantee supply.
- Maintain supplier commitment and relationship, as well as
obtain know-how for strategic reasons.
- Reduce inventory costs, including the overhead of managing
Why you'd Consider Outsourcing your Production
Other Important Make or Buy Considerations
- On-Time Delivery: If this is a critical factor, which
option is positioned to best meet and guarantee it?
- Economies of Scale: Depending on the volume to be produced
there may a natural limit on how much can be manufactured internally.
- If greater production volumes are needed in the future, is
there the capacity to deliver using your preferred method of supply?
- What is the probability of success for either making or
buying? What are the risks, likelihood and consequences of each?
- Responsiveness: If needed, how quickly could an in-house
or outsourced supply arrangement respond to a dramatic change in demand
- If outsourcing is being considered, is it possible to
visit, observe and talk to a prospective supplier?
- If so, what is your gut feeling?
- What is their track record like (references)?
- Are their values similar to yours?
- Are they likely to deliver on time, to the right
quality and at the right price?
Practical Points for ‘Make or Buy’ Decision Making
The decision to manufacture something in-house or outsource
it to suppliers varies depending on a wide range of factors, many of them
unique to your circumstances. As such, there are no hard and fast answers that
apply in all cases. Having said this, it is possible to maximise the chances of
success by providing practical guidance, drawn from the considerations listed
- Consider outsourcing if the activity does not add value
and is not strategic to the business. For example, only keep the task
in-house if it helps build core competencies and specialist skills, or the
activity is critical to the success of the product (often quality
- The 2 biggest factors to help decide will be cost and
- For cost, consider and compare the total costs of both
in-house production and outsourcing. Available capacity applies only to
the make in-house option. Here you need to understand what else you are
committed to produce. Consider existing production schedules, as well as
the skills available.
- Also take into account other factors from the list
provided earlier for ‘buy’ and ‘make’ respectively. Similarly, consider
broader considerations that apply equally to both, like delivery times,
production volumes and responsiveness.
- If you decide to outsource, visit a supplier if possible
to get a feel for their ability to deliver, as well as their sense of
values. What is your gut feeling about them? What does their track record
look like? How do they operate contractually and is it an arrangement you
can work with?
- Why not bring experience into your ‘make versus buy’
decision and get a few knowledgeable employees together before making a
judgement call. At minimum, get the opinions of both production and
Carefully consider all these points before being decisive,
putting together a plan and executing it. Monitor and review how things are
going, before making slight adjustments if you feel you need to. Lean
manufacturing businesses realise the importance of make or buy decisions as
part of their manufacturing strategy. For the most successful firms, it is
central to cutting out non-value added activities and therefore focussing on
making the most efficient use of their resources. Why not make it your aim too?
How Automation can Dramatically Improve Your
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