Make or Buy Decision

In this podcast, Ricardo talks about the choice of producing a work or service internally or purchase thru a supplier. He shows five items that are important when making the decision and also explains that there are other important criteria for choosing to make or buy than the costs involved.

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Episode transcript

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Hello everybody welcome to the five minutes BM podcast today. I like to discuss and share with you some concepts behind the make or buy process when we are doing procurement management. One of the key steps of doing that is to decide if I will do produce internally, I will do it internally. Or if I will go to the marketplace to find a supplier for that product or for that service. And I like to share with you five major aspects that you should consider while doing this decision.

The first one is to know, and to make sure is there a potential supplier for that and why I'm starting with this because of availability is something extremely important because you're producing a project, created a project that we'll buy something that doesn't exist. If this doesn't exist, you will have only two options do internally or develop the supplier. Let me give you a very easy example.

Let's think about NAZA the airspace agency in the us, more stuff there, our suppliers, they call develop the product. Y because this is not the product that you can find on the shafts at the supermarket, so they need to develop together. So this was the strategy that NASA use it to do that. So this is the first stop that I need to think. The second one is expertise. Do I have expertise to produce it internally?

Or is there any supplier with the bigger and the more deep expertise on that product or service? This is extremely important because I need to make sure I have this understanding clear for me, because if I don't have the expertise, or if someone else has better expertise, the lie, or maybe this will help me to move in the direction of Buy instead of making the third one is reliability in what is that?

It's to make sure that you can trust on your supplier. If you have a strong supplier, that's where you can trust in make sure that everything will go smoothly. Dan does move you to the buy decision, but if you are not trusting in your supplier, there is no reliability on your supplier side. This could be a big problem. This moves you to the Make decision. The fourth one, most of you were expecting, this is the costs and why I decided to put this in the fourth.

I'm not telling you that this is the rank. OK? But the Y you decide to put it in fourth because everybody put does on the first costs. Okay. It's cheaper. Buy or to make it, if it's cheaper to buy it, then I will be buying. Or if it's cheaper to make them, I we'll be making. And this is, he was a very interesting point of view, but please don't put yourself in the decision process where only costs, what is the major criteria?

Because of that, that I started with preorder ones who are costs is extremely, extremely, is important. But if you use only the cost perspective, you can use news or a huge opportunity to check availability, expertise, reliability, or aspects that are extremely relevant. And you were missing that in the last, but not least is how is this Decision this product or the service that I'm making or buying it's critical in this strategic site, for example, is this product that will be fine thinking about buying or making.

He is extremely tight. That to my side page, this will help me to move in my decision to the Make process, to put this on the scope of my project. But if this is not so relevant, you need to buy to finish my project, but this is not so grateful. It's not so strategic than what will be my Decision by Decision. Maybe will be Buy instead of making So one size, make the other side Buy.

So this is what we call a strategic approach, or how deep is this and how strong is this? The link between the strategy and the supply and the product that you are thinking. So it's really, really important. And this is not something that is very easy to do using mathematics In to finish. I like, just to make you aware that I presented to you five mechanism, five approach, five ways of thinking that Make or Buy Decision, there are plenty of others.

I think that these are very critical, but you can consider also confidentiality. You can think about global aspects, cultural aspects, okay. Brand recognition, a lot of other aspects that you may should consider, but bottom line that I want to keep your eye. Are you in mine, in this podcast? Is that if you were making a Make or Buy Decision, this is above and beyond just Make. If it's cheaper for you to make or buy it, if it's cheaper for you to buy, this is a very straight mentality.

When you are thinking about Make or Buy Decision. I hope you enjoy this podcast. See you next week with another five minutes B and Podcast.

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