Make or Buy? Outsourcing Considerations for Small Manufacturers

Should I make or should I buy? A question all too familiar for small manufacturing businesses. The question is how do you answer it? Are there guidelines, considerations and ‘rules of thumb’ that can assist engineering managers make informed decisions, which are highly likely to be the right solution for their business?

• Make or Buy? Outsourcing Considerations for Small Manufacturers (Below)
• The 2 Biggest Considerations: Cost and Capacity 
• Make or Buy Decision Making: Broader Considerations

Well fortunately the answer is yes!

By being aware of the key considerations, you and your engineering managers can make logical decisions reasonably quickly. You can decide whether to manufacture components or assemblies yourself, or alternatively outsource them to your supply base. Topics covered include:

• Why Might the Make or Buy Decision arise?
• What do the Experts Say?
• The 2 Biggest Considerations: Cost and Available Capacity
• Broader Considerations: Reasons for Both Making and for Buying
• Practical Points for ‘Make or Buy’ Decision Making

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Why Might the Make or Buy decision arise?

• A need to cut costs, in response to competition or as part of a review.



• As part of new product development or product redesign, where production and manufacturing engineering decisions are being made.



• Changing demand, for example if volumes sold rise significantly, leaving the current method of production no longer the cheapest or the most appropriate.



• Reduction in capacity. Demands on floor space, skills, equipment or some other variable, mean the existing way parts are supplied may not be the most efficient use of resources.



• Problems with existing suppliers, this includes availability of supply and logistics.



• Strategic re-evaluation of business processes in a drive to remain competitive. You may decide to refocus on core or strategically important activities.

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The Practicalities of Make or Buy Decision Making 

What do the Experts Say?

A well quoted source of expertise on the matter is ‘World Class Supply Management’ (Burt, Dobler and Starling). The general advice provided here is very much in line with lean thinking; essentially focussing on activities that add value (in this case internally within the business). As such, the recommendation is manufacturers should outsource all items that do not fit the following three categories:

• The item is critical to the success of the product, including customer perception of important product attributes.
• The item requires specialized design and manufacturing skills or equipment, and the number of capable and reliable suppliers is extremely limited.
• The item fits well within the firm’s core competencies, or within those the company must develop to fulfil future plans.

Considering the points above, items that fit under any one of these 3 categories are considered strategic in nature and should be produced internally if at all possible.

 

Hmmm – sounds OK in theory. However on the ground there are other considerations that come into play. Your business may have all sorts of constraints and limitations, not mentioned above; meanwhile you may be aware of a commercially viable, reputable supplier, more than capable of doing the job. If so, shouldn't outsourcing at least be considered? At this stage it’s worth reviewing some of the other variables which should be taken into account when making the ‘make or buy’ decision.

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Next... The 2 Biggest Considerations: Cost and Capacity

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Back to Supply Chains for Small Manufacturers or Lean Manufacturing

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