The purpose of this tool is to help manufacturers answer the question: Should we manufacture this component or outsource it? At the same time, it helps overcome emotional bias in production decisions.
Requirements for Accuracy
To be accurate, the tool must compare the Total Cost of Ownership (TCO).
Buy: You aren’t just paying the vendor’s invoice; you’re paying for shipping, incoming inspection, and the “Risk Premium” (the cost if the vendor is late or the quality is poor).
Make: You aren’t just paying for material; you’re paying for setup time, the “scrap risk” of learning a new part, and the opportunity cost of that machine not running something else.
Make vs. Buy Decision Matrix
In-House (MAKE)
Outsource (BUY)
What's Your Quality Risk Multiplier?
Most owners ignore this. "A 5% risk multiplier accounts for the cost of re-inspecting vendor parts or the occasional defect. If the vendor is overseas, consider a 10-15% multiplier."
Opportunity Cost
If the "Make" cost is even slightly higher, you should almost always "Buy." Why? Because making that part ties up a machine that could be producing a high-margin product.