Article: Make-or-Buy decisions

Reasons to Make

Reasons to Buy

Some reasons for the make decision include:

• Full control over the associated costs.
• Control over the design and quality of the final product.
• Lack of availability amongst suppliers.
• Potential delays from a supplier due to location, transport, customs, etc.

Some reasons for the buy decision include:

• Unable to make the product in-house due to equipment, technology, or resources.
• Lowered operational costs as its most cost-effective to buy the product externally.
• Mitigation of risk because of reduced liabilities.
•  Exchange rates.
• To achieve fixed costs.
• Need for small volume.

A 'make' example:

Sarah owns a pizza business based in Cavan and she gets fresh tomato sauce from a supplier based in Bristol, Sarah is worried about delays and the impact they will have on the cost and quality of tomato sauce. Sarah already knows the nine ingredients for making the tomato sauce, has worked out the cost of producing the sauce in-house, and knows she can manage this new workload within her business. 
Outcome: Sarah can now take control of this process and ensure the sauce is a high quality. 

A 'buy' example:

Sarah owns a pizza business based in Cavan and employs two people, on a casual basis, to make pizza deliveries at the weekend. Sarah is concerned about the impact exchange rates will have on her business and is aware this will add unpredictability to costs across her business. Sarah needs to move towards a fixed cost, and this can be easily achieved in the deliveries.

Outcome: Sarah decides to outsource the deliveries to a delivery platform.