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Make Or Buy Analysis Tool

Make Or Buy Analysis Tool

A Make or Buy analysis involves weighing the costs and benefits associated with either manufacturing a product in-house, or purchasing it from an external vendor. The decision to make or buy should maximise the benefits it brings to a company be it in the short term or in the long term, depending on what the company’s priorities.

 

Besides merely considering quantitative cost factors in the analysis, certain qualitative factors has to be considered as well as these may play a larger role in influencing the decision.

 

Examples of these factors are:

  1. Strategic importance

If the product or service in question is of great importance to the corporate strategy, it might make more sense to manufacture it in order to maintain complete control over it and reduce dependency on other vendors.

  1. Expertise

Certain product or services require a high level of technical expertise in order to achieve quality. In situations like these, it may be better to outsource the work to a supplier as attempting to do so yourself could possibly result in a high rate of failure.

  1. Timespan

Depending on the timespan, the make or buy decision can go either way. In the long run, making is likely to bring about more benefits, as many of the benefits associated with making cannot be actualised in a short time frame. On the other hand, buying is likely to be more beneficial in the short run.

 

To conduct a make-or-buy analysis, an Excel sheet is ideal. With Excel, unit costs of making and buying automatically calculated. The result can then be plotted into a graph, enabling you to quickly see the tipping point between making or buying. Excel also allows one to input qualitative factors as well, granting one the ability to compare both qualitative and quantitative factors, all in one place.

 

An off-the-shelf Excel sheet template can be downloaded here. For more customisability, a dedicated procurement software, such as ThunderQuote Enterprise, will be a better fit. Find out more here.

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