Make or buy

Producing something yourself or purchasing it. A recurring decision, not a permanent one.

What it means

A make-or-buy decision compares producing in-house against sourcing externally, on cost, quality, capacity, control and risk.

Why it matters

It determines fixed versus variable cost and how much of the value chain you control — and it should be revisited as volumes change.

What it looks like in practice

Compare on the RELEVANT costs: making in-house uses capacity that has an alternative use, and buying releases it. Include the cost of managing the supplier.\n\nStrategic capability is a legitimate reason to make at higher cost.

What to watch out for

Comparing full absorbed cost against a purchase price. If the fixed overhead continues either way, it is not relevant to the decision — see contribution.

Where to get proper advice

Your accountant.