Next Level Purchasing - Helping Purchasers Become Indispensable
Home   |   Contact Us   |   Email This Article To A Friend
Photograph of Charles Dominick, C.p.M., SPSM This is the Web-based version of this article. Click here for the printer-friendly version.
  * More Purchasing Articles

The Make Or Buy Procurement Decision

PurchTips - Edition #88

By Charles Dominick, C.P.M., SPSM


How Do You Know When To Outsource?

Are we outsourcing enough? What functions can we move to China? Are we doing business with India yet?

It is likely that a procurement manager somewhere is being asked these questions right now. Executives have noticed their peers increasingly relying on outsourcing.

While outsourcing may seem new, it really is just a new focus on the classic make or buy procurement decision. You need to ensure that such decisions are made intelligently and not just based on the outsourcing trend.

When dealing with a make vs. buy decision, there are four numbers you need to know:

  1. Your volume
  2. The fixed costs associated with making (e.g., the tooling that must be bought)
  3. The per-unit direct costs of making
  4. The per-unit landed cost from a supplier

So, you plug these numbers into a couple of formulas:

CTB = V * LC    and    CTM = FC + (PUDC * V)


CTB = Cost To Buy

V = Volume

LC = Supplier's Per Unit Landed Cost

CTM = Cost To Make

FC = Fixed Costs (of making)

PUDC = Per Unit Direct Cost (of making)

If CTM exceeds CTB, then it is more financially desirable to buy. If CTB exceeds CTM, the opposite is true. Practice by using the Excel template at .

Make/buy decisions aren't just about numbers, though.

Questions you absolutely must consider include:

(keep reading for a FREE Offer)

Spotlight On Professional Development Opportunities

Are you tired of not getting enough opportunities, respect, and money out of your purchasing career? Well, guess what? If you want something to change, you have to take action.

Earning your Senior Professional in Supply Management (SPSM) Certification is the action to take if you want a more successful future. You will know how to produce valued and measurable results and will have the credentials to prove it to any employer.

Now is the best time to take action for at least one very important reason! If you sign up for the SPSM Certification Program on or before 11/30/2005, you will earn a special package of bonuses valued at over $700 (US). This particular package of bonuses will never be offered again, so don't miss out!

To learn how to earn your SPSM Certification and these valuable bonuses, please visit:

The Latest Purchasing News!

FREE Offer!

Learn how to get 50 more articles like this and more for FREE at