Make-or-Buy Decisions

The EU-UK Trade and Cooperation Agreement, now in place, means change. It will require adapting to new trading arrangements, rules and regulations. This information provides a background to the sourcing decisions and options available to SMEs.

Getting Started

You may need to think about changing and assessing options within your business, such as the make-or-buy decision. This decision is between manufacturing an item internally (in-house) or buying it from an external supplier (outsourcing). We’ll help you explore these options and learn more about risks and opportunities.

Reasons to Make

Some reasons for the make decision include:

  • Cost concerns
  • Need for direct control over the product
  • Assured supply in case of unreliable suppliers
  • Lack of suppliers
  • Location of the supplier (opposite jurisdiction)
  • To maintain a backup source

Take this ‘make’ example: 

Sarah owns a pizza business based in Cavan and she gets fresh tomato sauce from a supplier based in Bristol, Sarah is worried about delays and the impact they will have on the cost and quality of tomato sauce. Sarah already knows the nine ingredients for making the tomato sauce, has worked out the cost of producing and knows she can manage this new workload in-house. 

Outcome: Sarah can now take control of this process.

Reasons to Buy

Some reasons for the buy decision include:

  • Changes in customs arrangements
  • Lowered operational costs
  • Mitigation of risk because of reduced liabilities
  • Exchange rates
  • To achieve fixed costs
  • Need of small volume
  • Insufficient capacity to manage in-house

Take this ‘buy’ example:

Sarah owns a pizza business based in Cavan and employs two people, on a casual basis, to make pizza deliveries at the weekend. Sarah is concerned about the impact exchange rates has on her business and is aware this will add unpredictability to costs across her business. Sarah needs to move towards a fixed cost and this can be easily achieved in the deliveries. 

Outcome: Sarah decides to outsource the deliveries to a delivery platform.

Actions: Making an Informed Decision

By following a structured process, you can make an informed decision on making-or-buying.

Step 1: 

Appoint a member of the team to oversee this process and identify the product requirements.

Step 2: 
Collect Information

Collect information on the information on various aspects of the make-or-buy decision and work out the direct and where possible, the in-direct costs.

Stage 3:
Review and Feedback

Review both the information from step one and step two, this will have pulled together important information for the decision making process to either buy-or-sell.

We’d love to know if we could improve this information, use the box below to give feedback or request information you’d like to see included.