Make or Buy Analysis in Supply Chain

Make or buy analysis in supply chain management is the decision-making process where available data is reviewed to determine whether or not to buy or keep a supply operation in-house.

A big part of your supply chain optimization is the make-or-buy decision. As a key part of strategic sourcing, it could set the pace for your entire supply chain.

 

Introduction

Supply chain management can be quite vast and complicated. Whether during supply chain planning or a strategic procurement brainstorming section, a key component of each meeting is what supply chain operations the business is willing to handle.

The process is known as make or buy analysis or decision-making. Navigating these is a strong catalyst for success in any supply chain management, which is the bedrock of most businesses.

In this article, we review the concept of make or buy analysis and how it benefits any supply chain management.

 

What is the make or buy analysis?

The make-or-buy analysis or decision-making is the process of identifying which supply operations to keep in-house and which of them your business is comfortable outsourcing.

Every supply chain process is not created equal. For some businesses, their strengths may lie in production, so they outsource logistics or transportation. Some businesses might focus on inventory and distribution while they outsource their production.

Major companies like Apple, Nike, and Amazon, among many others, all outsource different stages of their supply chain to enable them to focus on their core strengths.

 

Elements to consider during the make or buy analysis in supply chain management

The main goal of the make or buy analysis is the efficient use of resources. Several elements must be considered when making this decision for your supply chain.

 

1. Expertise: Is your team or staff equipped to handle the particular supply chain operation in question? The expertise of the business goes a long way to determine whether or not they will keep an operation in-house.

2. Cost: Will it cost your supply chain more or less to outsource the supply chain operation or keep it in-house? The goal of your business is to provide value, but it also requires you to make money. Keeping costs down goes a long way in the make-or-buy decision.

3. Efficiency: How efficient will your supply chain be if you keep that supply chain operation in-house compared to outsourcing it? Whether or not you decide to keep a supply chain process or operation in-house, it is important to factor in how effective your supply chain will be.

4. Resource: Do you have the available resources to make that operation a success in-house compared to outsourcing it? Resources here could mean capital, infrastructure, or personnel. Remember, each stage of the supply chain can be expensive and tasking even for the most successful businesses.

 

When these elements are in place and the questions surrounding them are properly answered, it goes a long way to optimizing the supply chain.

 

Importance of the make or buy analysis in supply chain management

When done properly, the make or buy analysis is immensely valuable to the success of any supply chain optimization, especially for the following reasons.

1. It ensures a lean supply chain, eliminating unnecessary processes and making it faster, better, and more effective.

2. The make or buy analysis reduces the cost of the supply chain, saving the business more money to reinvest in other sectors or departments.

3. It eliminates unnecessary risk in the supply chain by ensuring each process is given the appropriate expertise and attention.

4. Finally, and probably the most important of the process, it ensures customer satisfaction because each decision is made with the customer in mind.

 

Make or buy analysis in supply chain management- The process

There are four primary steps in the make or buy decision-making process.

 

1. Identify

The first step in any process is to identify the issue you are solving for. The same applies here. You want to identify the supply chain stages you want to apply the make or buy analysis. It could be sourcing, production, inventory, distribution, and others. 

It could also be a step of the supply chain operation, or it could be an infrastructure. For instance, businesses can outsource their production process to another facility. However, many of them are still heavily involved in the entire process.

 

2. Evaluate 

At this stage of the process, you evaluate the supply chain operation using elements of the make or buy analysis mentioned earlier. Answer the necessary questions and then take a score or a vote on what you and the relevant stakeholders think is best.

When answering the questions on how each element impacts the supply chain process, it is important to honestly answer them as it can spell success or failure for your supply chain.

 

3. Implement

After identifying and evaluating the process, the next step is implementing it. At this stage, you worry about issues like production feasibility, types of suppliers, supplier relationships, and others.

All these will help you implement the decision more effectively. For example, if you decide to outsource, you must know the type of suppliers or the ideal supplier to partner with.

4. Monitor

You want to monitor the decision and implementation to ensure your business and supply chain made the right choice. You want to look for relevant KPIs such as cost, effectiveness, lead time, and process output.

 

Constantly monitoring your decision-making allows you to identify issues and readjust to ensure the success of your supply chain.

 

FAQs on make or buy analysis in supply chain management

Q1: Can make or buy decisions be reversed?

Yes, decisions can be reversed if circumstances change. Companies must be flexible in response to changing market conditions and internal capabilities.

Q2: How might technology and data analysis help you decide whether to build or buy?

Advanced analytics can reveal cost structures, supplier performance, and market trends, allowing for a more informed make or purchase decision.

Q3: What are the most prevalent problems encountered during a make or buy decision?

Accurate cost estimation, identifying available resources, expertise, and balancing short-term gains and long-term strategy are all challenges.

Q4: How does globalization affect purchasing or making decisions?

Globalization introduces factors such as foreign trade rules, cultural diversity, and differing cost structures, all influencing sourcing selections.

 

Conclusion

Make or biu analysis in supply chain management is an effective method for optimizing supply chains and businesses. There are several factors and questions to carefully answer if you will make the best decision. The elements and guide mentioned in this article will help you make the most of the process.