Make vs. buy decisions are as old as procurement itself. They also form the basis of some of the most important decisions that procurement and company senior leadership can make, impacting jobs, balance sheets, IP protection, and overall organizational strategy in a manner that few other purchasing decisions can have. In Charting the course: Why procurement must transform itself by 2020, Deloitte pays attention to the concept of the “make vs. buy” as an important test of procurement’s general influence:
On many levels, “make vs. buy” influence is the ultimate test of procurement’s influence and capability because it relies on being the benchmark and market information clearinghouse, and therefore, the nexus point for all sides of the company in joint decisions. Moreover, it involves looking beyond unit cost, asking questions like “how does a ‘buy’ impact the ultimate end customer?” Further, does this step transfer risk, or actually increase it for the business? Procurement can play a part in generating the right set of questions up-front as well as coming up with creative solutions on the back-end.
Consider how a procurement organization could thwart competitors from even taking a serious look at a potential vertically-integrated acquisition strategy because of covenants with previous supply contracts (rights of first refusal, early insight into a potential transaction, guaranteed supply contracts/associated off-take agreements, etc.) This is true creativity applied not only to supplier negotiation and engagement, but also to a broader game of supply chain chess, where procurement controls the pieces on the board.
Not all contracting decisions can impact internal operations as much as make/buy decisions. But when it comes to building competitive advantage through the supply chain, procurement will no doubt focus significantly more on those strategic decisions and supply partnering arrangements by 2020 as it builds increasing competence, in Deloitte’s words, around creativity and innovation.
This post is based in part on content from Charting the course: Why procurement must transform itself by 2020. If you’re interested in learning more about how analysts see the future of procurement and supply chain, register for our upcoming conference, Commodity/PROcurement EDGE.