Make vs Buy

Make vs. Buy

One of the most important decisions a high-growth technology company faces in its early stages is whether to manufacture components and the final product using its own resources or to outsource the manufacturing process to another company ( Make vs. Buy).  As a high-growth company you design and develop cutting-edge technology products, but if you spend too much time creating, building, and scaling a manufacturing process your efforts may be squandered before you are ever able to get a viable product to market. Knowing when to make or buy will play an integral role in the successful launch of your product.

Before diving into quantitative manufacturing analysis and working to attain quotes from prospective suppliers, companies should strategically determine their short, medium, and long-term core competency goals. High-growth technology companies, due to a multitude of constraints, often can only, and should only, select a specific limited number of core competencies for the business. This more qualitative strategic supply chain analysis can be driven by a number of factors, such as where the company’s intellectual property is focused and where the company’s technology roadmap projects the company in 5 years. Tesla, for example, outsourced much of the company’s Body-In-White manufacturing to supplier Lotus early on to instead focus on more critical battery development, which it deemed a core long-term competency. This strategic supply chain decision allowed the company to conserve cash and focus its limited engineering resources on critical projects.

Make:

When considering to make, a company may decide to make their product themselves to develop a long-term core competency. A good question to ask yourself is, “Is the manufacturing process so complex that we are better suited to manufacture it in-house?” If there is a supplier that can produce the same components better, faster, and cheaper, then you are better off allocating your resources elsewhere and allowing your supply partners to manufacture components for you. Buying less complex COTS (Commercial-Off-The-Shelf) parts is another way to help reduce initial costs that you may otherwise incur while designing your product. Engineering and design services firms are great resources that can support your Design for Manufacturing (DFM) process to expedite your product commercialization. One more thing to consider is that developing a strong core competency that centers on strategic sourcing of quality components and services can be as powerful as developing a core competency involving manufacturing itself.

Buy:

When considering to buy, an important factor is to have an understanding of the cost and availability of components and similar manufactured products within the market today. If many of your components have a high availability and low cost, then you will want to source those products from your supply partners. If there are very few or no companies with the ability to supply the necessary components, then you should consider manufacturing these and developing them into your core competency. When doing this, consider designing around COTS and modified components so that you can reduce the amount of money allocated to these initial engineering and design costs for your product.

The make versus buy decision is not always an easy one. Be sure to do your research. Compare the cost of producing various components in-house versus outsourcing them, and make sure your leadership team collaborates to develop a robust short, medium, and long-term core competency as part of a strategic supply chain plan for your company. Often times the best strategy involves a combination of both making and buying to obtain maximum efficiency while getting your product to market in a cost-effective and timely manner. Careful upfront make versus buy analysis is key to product launch success.  However, the ongoing evaluation of each component and end product followed by a periodic make versus buy fosters a continuous improvement process that will lead to long-term success.

-William