Make or buy analysis - Procurement training - Purchasing skills

Summary

This video segment explores the make or buy analysis, a crucial component of the sourcing needs assessment process. It distinguishes between outsourcing, where companies delegate tasks to external parties, and tactical decisions on whether to produce items internally or purchase them from suppliers. Using Wind Plus as an example, the discussion highlights how the company transitioned from in-house blade production to outsourcing, emphasizing the importance of carefully weighing the pros and cons of each option. This analysis is vital for effective sourcing strategies and organizational decision-making.

Takeaways

• 😀 A make or buy analysis is part of the sourcing needs assessment process.
• 🤔 Many people confuse outsourcing with make or buy decisions.
• 🏭 Outsourcing involves transferring production responsibilities to an external party.
• 👥 Outsourcing decisions are made by a company's management team.
• 🛠️ An example of outsourcing is Wind Plus's decision to contract blade production to a third party.
• 🔍 A make or buy decision requires tactical consideration about whether to produce items internally or purchase them.
• 🔧 Assembling blades directly at the supplier is an example of a situation needing a make or buy analysis.
• 📊 The make or buy analysis is a critical decision within the sourcing process.
• 📝 It involves detailed analysis of pros and cons to determine potential benefits.
• 💼 Teams with appropriate responsibility levels can make make or buy decisions.

Q & A

What is the purpose of a make or buy analysis?

A make or buy analysis helps determine whether to produce certain items internally or purchase them from external suppliers.

How is outsourcing different from make or buy analysis?

Outsourcing involves a company contracting out a specific activity to an external party, while make or buy analysis focuses on tactical decisions regarding internal production versus external procurement.

Who typically makes outsourcing decisions within a company?

Outsourcing decisions are made by the management team of a company.

Can you provide an example of a decision made through outsourcing?

An example is when Wind Plus decided to outsource the production of blades to a third party, which was a strategic decision made by the management team.

What specific decision does a make or buy analysis address?

A make or buy analysis addresses whether to assemble components internally or to outsource that assembly to a supplier.

What does assembling the new blade to the bearing at Wind Plus involve?

It involves evaluating whether to perform the assembly internally at Wind Plus or to rely on the blade supplier for that assembly, necessitating a make or buy analysis.

What level of responsibility is required for making a make or buy decision?

Individuals at the managerial level, like Daniel, can take part in making the make or buy decisions.

Why is the make or buy analysis considered critical in the sourcing process?

It is critical because it involves a detailed analysis of the pros and cons to determine the potential benefits of each option, which can significantly impact operational efficiency and cost.

What factors should be considered in a make or buy analysis?

Factors include cost, quality, production capabilities, and potential risks associated with each option.

What does Ana imply about the difficulty of the make or buy analysis?

Ana implies that the make or buy analysis is a tough and complex decision that requires careful consideration and is one of the most significant decisions in the sourcing process.