flevyblog

Flevy Blog is an online business magazine covering Business Strategies, Business Theories, & Business Stories.
MANAGEMENT & LEADERSHIP STRATEGY, MARKETING, SALES OPERATIONS & SUPPLY CHAIN ORGANIZATION & CHANGE IT/MIS Other

Understanding the Critical Assessments Involved in a Manufacturing Make-or-Buy Decision

Editor's Note: Take a look at our featured best practice, Manufacturing Company Financial Model - Dynamic 10 Year Forecast (Excel workbook). Highly sophisticated and user-friendly Financial Model providing advanced financial & planning analysis for a Startup Manufacturing Company. Suitable for any type of industry, the model is a flexible tool for CEO/CFO's to control and improve daily operations and forecast financial and [read more]

Also, if you are interested in becoming an expert on Supply Chain Management (SCM), take a look at Flevy's Supply Chain Management (SCM) Frameworks offering here. This is a curated collection of best practice frameworks based on the thought leadership of leading consulting firms, academics, and recognized subject matter experts. By learning and applying these concepts, you can you stay ahead of the curve. Full details here.

* * * *

Make or buy?  This is one of the most first questions asked when formulating a Manufacturing Strategy.  In fact, internal manufacturing of a product versus procurement from external supplier sources is a difficult decision requiring careful and thorough assessment of multiple elements.

When evaluating the make-or-buy question in Manufacturing, there are 6 broad assessments to conduct.  These are:

  1. Manufacturing Strategy Compatibility
  2. Total Delivered Costs
  3. Capacity
  4. Intellectual Property Exposure Risk
  5. Business Case
  6. Contract Manufacturers Availability

Let’s take a look at these first 3 assessments in further detail.

Manufacturing Strategy Compatibility

The crux of this assessment is the question: does the product fit within our Manufacturing Strategy?

Most companies decide to manufacture a product in-house merely because of their existing capacity.  However, this decision should be ideally based on an assessment of the facilities, technologies, processes, and materials needed for in-house manufacturing.

These Logical Manufacturing Units (LMUs) and inputs should be validated against predefined standards.  If there is a compatibility issue the product should be bought externally.  In case the LMUs and inputs match the predefined standards, more thorough analyses at the micro level should be carried out to determine the viability of internal manufacturing.

Total Delivered Costs

The crux of this second assessment lies in addressing the core question:  how do internal costs compare with third-party alternatives?

The second analysis evaluates the internal versus external option on the basis of costs.  The Cost Analysis confirms the practicality of the manufacturing strategy.  If the cost analysis reveals that a product cannot be made in-house economically, the manufacturing strategy is inconsistent and should be revisited.

Capacity

This assessment entails comparison of the capacity required to manufacture a new product based on demand projections with the internal available capacity.  A deficiency in capacity should not automatically trigger a buy decision, but it could result in new products replacing the existing ones that are poorly compatible with the manufacturing strategy.

A stamp maker in Singapore Kiasu Print regularly needs conduct this assessment of manufacturing capacity.  This company has been operating in the printing industry for 10 years with a value proposition centered around affordability and customizability.  They develop products on demand to customer’s exact specifications (e.g. jasa bikin logo).

By conducting all 6 assessments, a company like Kiasu Print can render a structured and unbiased decision for the make-or-buy question.

However, please note that not all 6 assessments are required for all companies to make informed make-or-buy decisions.  Each case should be evaluated against its product nuances, company maturity, and Manufacturing Strategy.

For organizations that have a structured make-or-buy Manufacturing decision process in place, they typically have clearly defined roles and responsibilities for key stakeholders.   In fact, the first step leading companies take is to identify key stakeholders in their decision making process.

Many organizations also utilize well-defined RACI (responsible, accountable, consulted, informed) plans to explain the level of involvement and roles for the stakeholders.  In any large corporate decision, it is very important for all the stakeholders to understand the responsibilities and accountabilities of each person. While smaller teams can have more informal rules to keep track of responsibilities, in bigger teams with cross-department and inter-organizational collaboration, it is essential to create a more formal process to track responsibilities. The RACI tool is a very useful technique which can help to reduce confusion and leads project to faster completion.

167-slide PowerPoint presentation
In this Lean Manufacturing presentation, we explore the Lean philosophy, which is rooted in the Toyota Production System (TPS). Lean aims to enhance customer value by optimizing processes and eliminating waste, ultimately increasing productivity and value with fewer resources. A key [read more]

Want to Achieve Excellence in Supply Chain Management (SCM)?

Gain the knowledge and develop the expertise to become an expert in Supply Chain Management (SCM). Our frameworks are based on the thought leadership of leading consulting firms, academics, and recognized subject matter experts. Click here for full details.

Supply Chain Management (SCM) is the design, planning, execution, control, and monitoring of Supply Chain activities. It also captures the management of the flow of goods and services.

In February of 2020, COVID-19 disrupted—and in many cases halted—global Supply Chains, revealing just how fragile they have become. By April, many countries experienced declines of over 40% in domestic and international trade.

COVID-19 has likewise changed how Supply Chain Executives approach and think about SCM. In the pre-COVID-19 era of globalization, the objective was to be Lean and Cost-effective. In the post-COVID-19 world, companies must now focus on making their Supply Chains Resilient, Agile, and Smart. Additional trends include Digitization, Sustainability, and Manufacturing Reshoring.

Learn about our Supply Chain Management (SCM) Best Practice Frameworks here.

Readers of This Article Are Interested in These Resources


Excel workbook
The Manufacturing Startup Feasibility Model Excel Template is made for business owners who are engaged in the manufacturing business and want to know their future projections. There is a huge potential for manufacturers to grow in the future and earn reasonable profits. Hence one must plan [read more]


 
371-slide PowerPoint presentation
 
 
111-slide PowerPoint presentation

About Shane Avron

Shane Avron is a freelance writer, specializing in business, general management, enterprise software, and digital technologies. In addition to Flevy, Shane's articles have appeared in Huffington Post, Forbes Magazine, among other business journals.


Complimentary Business Training Guides


Many companies develop robust strategies, but struggle with operationalizing their strategies into implementable steps. This presentation from flevy introduces 12 powerful business frameworks spanning both Strategy Development and Strategy Execution. [Learn more]

  This 48-page whitepaper, authored by consultancy Envisioning, provides the frameworks, tools, and insights needed to manage serious Change—under the backdrop of the business lifecycle. These lifecycle stages are each marked by distinct attributes, challenges, and behaviors. [Learn more]

We've developed a very comprehensive collection of Strategy & Transformation PowerPoint templates for you to use in your own business presentations, spanning topics from Growth Strategy to Brand Development to Innovation to Customer Experience to Strategic Management. [Learn more]

  We have compiled a collection of 10 Lean Six Sigma templates (Excel) and Operational Excellence guides (PowerPoint) by a multitude of LSS experts. These tools cover topics including 8 Disciplines (8D), 5 Why's, 7 Wastes, Value Stream Mapping (VSM), and DMAIC. [Learn more]
Recent Articles by Corporate Function

  

  

  

  

  

The Flevy Business Blog (https://flevy.com/blog) is a leading source of information on business strategies, business theories, and business stories. Most of our articles are authored by management consultants and industry executives with over 20 years of experience.

Flevy (https://flevy.com) is the marketplace for business best practices, such as management frameworks, presentation templates, and financial models. Our best practice documents are of the same caliber as those produced by top-tier consulting firms (like McKinsey, Bain, Accenture, BCG, and Deloitte) and used by Fortune 100 organizations. Learn more about Flevy here.
  


OUR CORE OFFERINGS
Flevy Marketplace: Top 100
· Strategy & Transformation
· Digital Transformation
· Operational Excellence
· Organization & Change
· Financial Models
· Consulting Frameworks
· PowerPoint Templates
FlevyPro (Subscription Service)
KPI Library
Streams (Functional Bundles)
Flevy Executive Learning (FEL)
PowerPoint Services

FREE Resources

About Flevy
Management Topics
Marcus (AI-Powered Consultant)
Partner Program
LinkedIn Influencer Marketing
FAQ / Terms / Privacy / Blog
Contact Us: support@flevy.com



CONNECT WITH US!
       
TOP 100 TRENDING TOPICS
Acquisition Strategy
Agile
Analytics
Artificial Intelligence
Balanced Scorecard
Best Practices
Big Data
Breakout Strategy
Business Continuity Planning
Business Plan Financial Model
Business Transformation
CMMI
COBIT
Change Management
Cloud
Communications Strategy
Company Financial Model
Competitive Advantage
Competitive Analysis
Consulting Frameworks
Continuous Improvement
Core Competencies
Corporate Culture
Cost Reduction Assessment
Customer Experience

BROWSE BY FUNCTION
Strategy, Transformation, & Innovation
Digital Transformation
Operational Excellence and LSS
Organization, Change, & HR
Management Consulting

Customer Journey
Customer Service
Cyber Security
Data Privacy
Decision Making
Digital Marketing Strategy
Digital Transformation
Digital Transformation Strategy
Due Diligence
ESG
Employee Engagement
Employee Training
Enterprise Architecture
Growth Strategy
HR Strategy
Hiring
Hoshin Kanri
ISO 27001
ITIL
Information Technology
Innovation Management
Integrated Financial Model
Kaizen
Kanban
Key Performance Indicators

ADDITIONAL RESOURCES
Business Strategy Frameworks
Case Studies
Consulting Training Guides
COVID-19 Trend Data
Digital Transformation
Financial Advising Services (FAS)

Knowledge Management
Leadership
Lean
Lean Manufacturing
Logistics
M&A (Mergers & Acquisitions)
Manufacturing
Market Research
Marketing Plan Development
Maturity Model
McKinsey PowerPoint
McKinsey Templates
Operational Excellence
Organizational Change
Organizational Design
Performance Management
Post-merger Integration
Pricing Strategy
Process Improvement
Process Maps
Procurement Strategy
Product Launch Strategy
Product Strategy
Project Management
Quality Management


Free Resources
KPI Library
Lean Management
Lean Six Sigma Training Guides
Marcus Insights
Operational Excellence

Real Estate
Remote Work
Restructuring
Risk Management
Robotic Process Automation
SWOT
SaaS
Sales
Scrum
Service Design
Six Sigma Project
Social Media Strategy
Strategic Planning
Strategic Thinking
Strategy Development
Supply Chain Analysis
Sustainability
Target Operating Model
Team Management
Total Productive Maintenance
Value Chain Analysis
Value Creation
Value Stream Mapping
Visual Workplace
Workplace Safety


Product Strategy
Small Business Owner
Startup Resources
Strategic Planning
Strategic Planning Process
Value Innovation Strategy


© 2012-2024 Copyright. Flevy LLC. All Rights Reserved.