The Procurement Glossary » Make-or-Buy Decision

Make-or-Buy Decision

Sourcing & RFx

Definition

The analysis of whether to produce a good or service in-house or purchase it from an external supplier.

Explanation

Make-or-buy weighs cost, capacity, capability, control and strategic importance. Outsourcing non-core needs frees resources; keeping core or sensitive work in-house protects capability and IP. The decision is revisited as costs and strategy change.

Example

A make-or-buy review moves payroll processing to a specialist provider, cheaper and more reliable than the in-house team.

Related terms

• Outsourcing — Contracting an external supplier to perform a function or produce goods that could otherwise be done in-house.
• Total Cost of Ownership (TCO) — The full lifetime cost of a purchase — not just the price, but delivery, installation, operation, maintenance, downtime and disposal.
• Business Case — A structured justification for a proposed decision or investment, weighing costs, benefits and risks.

Frequently Asked Questions

What is Make-or-Buy Decision?

The analysis of whether to produce a good or service in-house or purchase it from an external supplier. Make-or-buy weighs cost, capacity, capability, control and strategic importance. Outsourcing non-core needs frees resources; keeping core or sensitive work in-house protects capability and IP. The decision is revisited as costs and strategy change.

Can you give an example of Make-or-Buy Decision?

A make-or-buy review moves payroll processing to a specialist provider, cheaper and more reliable than the in-house team.

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