Outsourcing is closely related to make or buy decision. The corporations made decisions on what to make internally and what to buy from outside in order to maximize the profit margins.
As a result of this, the organizational functions were divided into segments and some of those functions were outsourced to expert companies, who can do the same job for much less cost.
Make or buy decision is always a valid concept in business. No organization should attempt to make something by their own, when they stand the opportunity to buy the same for much less price.
Reasons for Making
There are number of reasons a company would consider when it comes to making in-house. Following are a few:
- Cost concerns
- Desire to expand the manufacturing focus
- Need of direct control over the product
- Intellectual property concerns
- Quality control concerns
- Supplier unreliability
- Lack of competent suppliers
- Volume too small to get a supplier attracted
- Reduction of logistic costs (shipping etc.)
- To maintain a backup source
- Political and environment reasons
- Organizational pride
- Reasons for Buying
Following are some of the reasons companies may consider when it comes to buying from a supplier:
- Lack of technical experience
- Supplier’s expertise on the technical areas and the domain
- Cost considerations
- Need of small volume
- Insufficient capacity to produce in-house
- Brand preferences
- Strategic partnerships
The make or buy decision can be in many scales. If the decision is small in nature and has less impact on the business, then even one person can make the decision. The person can consider the pros and cons between making and buying and finally arrive at a decision.
- Team creation and appointment of the team leader.
- Identifying the product requirements and analysis.
- Team briefing and aspect/area destitution.
- Data Collection
- Collecting information on various aspects of make-or-buy decision.
- Workshops on weightings, ratings, and cost for both make-or-buy.
- Data Analysis
Analysis of data gathered
Feedback on the decision made