It's Never Been a Better Time for Make/Buy Analysis

Given the overall state of the economy, the general benefits of moving from a fixed to a variable cost structure and, most recently, the formal submission of new card check legislation in Congress that will empower unions at the expense of management flexibility, it's never been a better time for manufacturers to consider make/buy analyses across their production areas. Given the card-check legislation, in fact, you might not have the flexibility a year or two from now to consider manufacturing outsourcing if a new union has a say at your business roundtable. Well over a decade ago, Japanese automotive OEMs decided to outsource, for example, the assembly of a range of components rather than buying piece parts, kitting and assembling them in house. The Big 3, in contrast, did not have the same opportunity, owing to labor’s seat at the table (contrary to what some people have thought, it was not just management stupidity). Ultimately, not only did these "buying" decisions lead to lower initial costs for the Japanese OEMs -- they improved overall quality levels as well.

Given the state of the market, we should all take this lesson to heart today. Whether you currently manufacturer a specific part or assembly that a supplier could provide or if you're using a lot of your production space for kitting and final assembly, now is a great time to look at make/buy opportunities. If you consider that most suppliers are hungry for more work (and will sharpen their pencils accordingly) and the benefits of freeing up working capital for moving to "buy" arrangements, what do you have to lose from considering the options? To speed and improve the decision analysis, negotiation and award process, consider using optimization tools and solutions that can let suppliers submit alternative specifications and criteria (e.g., service level requirements, alternative materials, different kitting options, order quantity size, JIT or VMI requirements, lead-times, etc.). CombineNet, Trade Extensions, Ariba, Emptoris, BravoSolution, Iasta, AT Kearney Procurement solutions and a number of other optimization software and solution providers can be invaluable in helping you arrive at the best make/buy decision and possible award scenarios.

Jason Busch

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