Many chief executives consider the make-or-buy decision to be among the most critical and most difficult confronting their organizations. Not only are billions of dollars needlessly wasted if the wrong decision is made, but scarce management resources frequently are stretched past the breaking point.
Outsourcing is a term being used in relation to services such as accounting, maintenance, security, promotion, stocking, and the like. The basic issues are the same concerning the question of doing it yourself or contracting with an independent outside the buying firm.
The strategic issue requires the firm to identify its core competencies-the things that differentiate it and make it viable. If an item or service at or near the heart of the firm’s core competencies is to be outsourced, it should only be supplied by a carefully selected supplier under a tightly woven strategic alliance.
Top management has the ultimate responsibility for make-or-buy decisions. In most cases, this responsibility can be satisfied through operating procedures that develop and pool all relevant information surrounding a make-or-buy issue. Purchasing is a source of much of this information. Also, Purchasing frequently should identify candidates for a make-or-buy analysis.
Five major problems are common in the make-or-buy area namely:
1. Make-or-buy decisions are made at too low a level in the organization.
2. Not all factors are considered when conducting a make-or-buy analysis.
3. Decisions are not reviewed on a periodic basis. Circumstances change!
4. The estimates underlying the cost of making are less objective and accurate than the purchase facts.
5. Members of the buying company assume they know more than the supplier about the material or service.
