Outsourcing decision criteria
The trend is towards reducing your own vertical integration. This means that procurement management is of additional importance – also regarding the selection of suitable partners for the external procurement of products and services that were previously created in-house. In a make-or-buy decision, it is determined whether the service is to be manufactured in-house or purchased externally. If activities are permanently outsourced to a supplier, this is referred to as outsourcing. Reasons for make-or-buy decisions can be:
- Additional demand beyond own capacity
- Changes in the cost structure
- Shortage of capital for own investments
- Concentration on your own core competence
- Quality arguments
- Improving delivery reliability and flexibility
- Availability of technical or logistical know-how
If the company is in a weak competence position relative to the environment, this speaks for outsourcing. On the other hand, a strong position relative to the environment speaks for in-house production. The following principle should apply when considering:
Everything that a supplier handles better than its own company can be the subject of outsourcing – except for the processes that make up the company’s the core competence. When selecting the outsourcing partner, points such as framework agreements on order volumes and agreements on quality assurance and confidentiality must be considered. They guarantee the long-term relationship and the expansion into a value-added partnership.
Outsourcing or in-house production
Often a portfolio examines the strategic importance of different parts and their market availability. From the positioning of the products, a classification can then be made according to in-house production, outsourcing and individual piece decisions.
Figure: Classification of products according to external or in-house performance in the context of strategic importance and market availability