Make versus Buy is a key strategic decision made by a company on whether it should make a product or its components in-house or buy them from a supplier. A Make versus Buy decision requires a rigorous process that considers not only a company’s financial factors but also its wider strategy, exploring core competencies, human resources, network and technology solutions, maintenance and flexibility. With third-party suppliers in low-cost regions often offering more competitive pricing and businesses under pressure to reduce their costs, Make versus Buy is becoming a more frequent consideration. However, outsourcing is not always the best option. When evaluating a company’s wider operations involved in sourcing the product or component elsewhere and the potential impact on quality, delivery and customer satisfaction, the decision becomes much more complex.
At Vendigital, our cost and value engineers leverage their in-depth expertise combined with our digital platform to understand the true costs of delivering a product or service. Working closely with our clients and key stakeholders across their operations, we provide our clients with this information enabling them to make data-backed decisions that support better profitability, stronger business resilience and greater competitive advantage. By establishing optimal long-term supplier partnerships and internal capacity, as needed, we ensure these Make versus Buy decisions are sustainable and continue to deliver maximum ROI.
Using our wide-ranging industry knowledge and our proprietary digital platform, we adopt a four-stage process when supporting our clients with the Make versus Buy decision process: Identify, Evaluate, Deliver and Sustain.
The first stage in the process is to identify all the relevant information and data. We determine the contractual detail of the offering and establish its cost base at a granular level. The data collected in this phase typically includes financials, price lists, contracts and usage frequency.
Using the hierarchy of identified customer requirements, our consultants create cost targets at the system, subsystem and component levels. At this point, we also investigate internal benchmarks and carry out gap analyses, where appropriate.
At the evaluation stage, our cost and value engineers investigate processes and machinery requirements and explore the resource skills matrix, measuring it against these requirements. Taking a comprehensive approach across all relevant departments, we ensure the impact across the whole facility is considered.
Once all data has been gathered and analysed, we are in a position to develop a decision matrix that includes detailed, clear variables. We can then offer recommendations made in terms of Make versus Buy and additional capital expenditure (CapEx) requirements, as needed.
If appropriate for the business, we also build a ‘Make+’ model, to assess how far internal investment could bring ROI benefits.
The Make versus Buy decision will only deliver maximum benefit if it is sustainable. Therefore, when opting to outsource, we support our clients in developing long-term strategic service partners on agreed cost bases. When retaining the manufacturing in-house, we ensure the necessary structure is in place to up-skill the workforce with the required toolkit to meet demand.
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The benefits of best practice
An effective Make versus Buy decision process will focus diligently on all the benefits and risks to cost and quality to deliver the best possible advantages for the business. With our industry and operational expertise, we ensure our clients have all the necessary information available, presented in a clear, precise format, so that they can make a decision that delivers maximum ROI and is sustainable for long-term growth.
Three key benefits our approach to Make versus Buy delivers are:
A comprehensive Make versus Buy decision will provide the most cost-effective method of delivering a product or its components, whether that’s found to be in-house or by outsourcing. Reducing these production costs will create improved profitability.
Increased competitive advantage
Make versus Buy decision-making can lead to greater competitive advantage. By improving efficiency through maximising the use of the company’s core capabilities and outsourcing where better value is obtained elsewhere, the company can offer the customer an improved product at a more competitive price, enabling an increase in market share.
Reduction in costly errors
By using the Make versus Buy process to make the best use of the skills and resources available within the company and outsourcing those processes that are better fulfilled from external suppliers, businesses can reduce the likelihood of errors or issues with product manufacture.
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