Who hasn’t heard of Make or Buy? In a corporation or SME, deciding whether to conduct an activity internally or have it done by an outside party is a frequent decision. This concept is also evident in daily life; whether to hire a babysitter or take care of the children oneself is a Make or Buy decision.
So far, nothing new
The theme that is becoming increasingly prominent in the business world is the nature of Make or Buy evaluations. Currently, most Make or Buy evaluations are tactical in nature, meaning they relate to projects or activities that must be completed in the short term (within 12 months, but often much sooner). When an emphasis is placed too much on day-to-day operations, business functions are often over-staffed (even on activities that don’t add value). As a result, companies are forced to apply the infamous ‘patch’ to avoid disrupting the business…
Here are the risks of tactical Make or Buy!
The critical consequences are:
- Outsourcing of fundamental components/activities of the company’s core business, resulting in losses of know-how, intangible value, and therefore value for the entire enterprise
- Single sourcing (monopolizing the supply) and reducing bargaining power
- Engaging the workforce in low-value activities, which leads to reduced motivation of highly skilled workers.
It’s a desperate Situation… How to Solve It?
Some forward-thinking industries have started to adopt strategic Make or Buy evaluations, focusing on activities or products that will be produced or delivered in the next 3-5 years rather than in the next 12 months. This type of evaluation poses a more complex challenge. The company must have more comprehensive information and interactions between different functions.
- Strategy must be involved to ensure the future volumes forecasted in the business plan are achievable.
- Business Development and the sales department must take responsibility for their promises in the plan.
- Technical functions must have clear in-house knowledge and determine their future product/program strategy.
- Procurement must be responsive to decisions and have proper channels to implement aligned sourcing.
- Lastly, the entire management team must invest the necessary resources to ensure the success of the strategy.
It’s not an easy task, but it’s necessary to guarantee a future for companies through innovation and change!