Eyrix — Blog
Make-or-buy decisions in production planning: stop deciding by gut feel
When demand rises past what the lines comfortably hold, someone has to decide what to make in-house and what to outsource to a subcontractor or contract manufacturer. In most plants that decision is made on experience — a planner's feel for what the line can take and what the vendor charges. Experience is valuable, but it isn't a comparison, and make-or-buy is a comparison: for this demand, at this moment, which split of make and buy is both feasible and cheapest?
The question is a split, not a switch
Make-or-buy is rarely all-or-nothing. The useful answer is usually a boundary: make everything up to the point the lines are full, then buy the delta that doesn't fit. Framed that way, three things have to be known at once to answer it:
- Where the make capacity runs out — the finite-capacity picture, not a theoretical maximum.
- What the delta actually is — how much volume spills past that line, per week.
- What buying it costs — the outsourced unit cost versus the in-house cost of the same volume, including the overtime or overload you'd need to keep it in-house.
Decide by gut feel and you tend to make too much (a line quietly over capacity, with the cost hidden in expediting and missed dates) or buy too much (paying a vendor for volume the plant could have absorbed).
Why it has to be per scenario
Demand isn't one number, and the make-or-buy boundary moves with it. Take a baseline plan that fits entirely in-house: no buy needed. Now add an 18% spike on one SKU. Suddenly all-make pushes a line over capacity in three consecutive weeks — infeasible — while make plus buy two lots to a contract manufacturer stays inside every limit and closes on time. Same product, same plant, opposite decision, purely because demand moved. A sourcing rule set once and left alone can't track that; the boundary has to be recomputed each time the demand picture changes.
What it takes to answer it honestly
Answering make-or-buy properly means holding demand, capacity, the bill of materials and sourcing options in one calculation — because they constrain each other. The capacity limit sets where make stops; the BOM sets what buying pulls in the way of materials; the sourcing cost sets whether the split is worth it. Kept in separate files, the comparison degrades into the gut-feel call it was meant to replace.
The output that changes the decision
A planning engine that models these together doesn't just say make or buy — it quantifies the trade-off: this scenario is feasible if you outsource two lots, it costs this much more than the baseline, and here's the delta that made the difference. That's a decision a planner can defend, and it turns demand, capacity and sourcing planned together from a slogan into the thing that actually settles the argument.