Make or buy

Although outwardly simple in concept, the decision actually relies on multiple variables, all of which must be considered before any meaningful conclusions can be made, especially when dealing with precision engineered components. Looking at the basics, these questions should be addressed in the decision-making process: [] Schedule: Do you have the capacity to be able to produce the parts on time and to the correct quality levels, without impacting on other projects? [] Skills: Do you have the personnel who possess the right skill-set to manufacture the parts, potentially on new machines and from unfamiliar materials [] Space: Do you have spare floor space in which to site a new production cell? [] Spend: Do you have the capital to buy in new machines and skills, and can the payback be justified? Can you also justify all the other cost elements that make up the whole, such as inventory, quality inspection/testing and maintenance? Demonstrating what a minefield of issues this decision throws up, we can also add advice from the academic world. The book 'World Class Supply Management' offers a rule of thumb for outsourcing. It suggests that a firm outsources all items that do not fit the following three categories: [] The item is critical to the success of the product, including customer perception of important product attributes; [] The item requires specialised design and manufacturing skills or equipment, and the number of capable and reliable suppliers is extremely limited; [] The item fits well within the firm's core competencies, or within those the firm must develop to fulfil future plans. The conclusion is that items that fit in one or more of these three categories are considered strategic in nature and should be produced internally, if at all possible. Yet sometimes it is just not best practice to manufacture in-house when a competent third party that shares your ideals and mindset is available as a commercially viable alternative. When a third party is considered, academia wades in again with multiple caveats, such as: the need to exert direct control over production and/or quality; design secrecy; avoiding unreliable/not competent suppliers; and avoiding quantity levels that are too small to interest a supplier. However, there are multiple compelling positives that must also be considered. These include the supplier's expertise and know-how being greater than that in-house, the fact that it might overall be far less expensive to buy than to make, suppliers may be more suited to lower-volume production runs, and the supplier's capacity and capabilities may exceed those of the in-house offering. And, having opted for the subcontract route, further work is still required. For the aerospace industry and, indeed, many other industries, national, international and company-specific quality standards must also be satisfied. But a simple question might also provide illumination: "Would this company, its employees, its technology, its ethos and its capabilities look out of place, if it was my machine shop?" If your answer is no, then most of the hard work has already been done. First published in Machinery, September 2012