Make or Buy?

Make or Buy?
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One of major purchasing decisions a business has to decide upon is whether it actually makes it's products or simply outsource the production to another company. This decision making task is commonly phrased as the make or buy decision.

It's very hard to define a time frame for when outsourcing first started, we can say that in the UK as a result of it's declining manufacturing base, outsourcing came to prominence during the 1980's.

Outsourcing is used extensively across the UK and Europe particularly in Electronics, Information Technology, Aerospace and Automotive Industries. Often services such as cleaning and catering are outsourced.

The biggest advantages of outsourcing include a business does not have to:

Absorb the actual purchasing, storing of raw materials.
The costs of machinery.
The cost of running that machinery
The costs of recruiting, employing people to produce the product and also the support personnel required to look after the needs of employees.

Outsourcing can also pose a few problems as some businesses have outsourced their entire product ranges in the hope of achieving short term cost savings, only to find that they lose the knowledge and expertise from actually manufacturing products that allows them to develop new products.

Often older products are outsourced by manufacturers as they concentrate their production efforts towards making current and new product ranges. If a business decides to follow the outsourcing route, then our advice would be to concentrate on older product ranges and keep tight controls on suppliers to ensure they do not gain excess amounts of information.

Outsourcing gained popularity for a variety of different reasons the most common was the reduction in costs to allow for competitive pricing. We can say that in the UK it was used as another method by which we embraced German and Japanese manufacturing techniques, where outsourcing was much more prevalent.

Outsourcing can provide for vast savings, and if achieved in a logical manner, where the suppliers are integrated into the exact requirements of the business will allow for competitive advantage. But be aware of the pitfalls, do not outsource simply to achieve a short term gain look at the long term impact on your business.

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