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• Make or Buy
• Subcontracting
• In sourcing and Outsourcing
• Outsourcing Purchasing and Logistics
• Purchasing Role in Insourcing and Outsourcing
Make or Buy
100% 100%
Gray Zone
Make Buy
Outsource Insource
More More
Make Buy
Gray 100% Insource Outsource Gray 100%
Zone Buy Zone Make
“We would prefer not to produce this product or service in-house, but we
really don’t have any other options.”
OR
“We would prefer to do this in-house because it would give us a strategic
competitive advantage.”
Outsourcing
•An entire function may be outsourced ,or some elements of an activity may be
outsourced and some kept in-house.
Risks of Outsourcing
1. Loss of control in your supply chain
e.g., financial strength, lose of supplier commitment, response time, poor daily
quality, promised features or services not available.
8. Concerns with long-term flexibility and meeting changes with business requirements.
The Outsourcing Matrix
The Outsourcing Decision
Yes Keep the function
Is the activity strategic?
in-house
No
Is the activity critical to the Yes Keep the function
business but not strategic? in-house
No
Create a RFP.
Gather supplier bids/proposals.
No
Is the supplier’s bid/proposal more No Keep the function
desirable than the internal option? in-house
Yes
Could the internal option achieve Yes Keep the function
similar results? in-house
No
Negotiate a contract to ensure
that expectations are realized
Outsourcing Purchasing and Logistics
Many tasks associated with logistics function as well as the entire function itself
have been heavily outsourced.
Examples:
– Ownership and management of an in-house fleet of vehicles may be subject to the decision to
outsource or maintain in-house.
– In organization where the sales force is large, the car for sales representatives may be seen as an
extension of sales force, and part of the company ability to outperform the competition in personal
sales.
Many of the function of fleet may be outsourced rather than owning the vehicles, maintenance,
resale of vehicles.
The outsourcing decision is function of many factors, and each organization must
asses these factors based on the goals and objectives and long-term strategy of
the organization.
Purchasing’s Role in Insourcing and
Outsourcing
Supply managers should be heavily involved to add in the following ways:
• Providing a comprehensive, competitive process.
• Identifying opportunities for insourcing or outsourcing.
• Aiding in selection of sources.
• Identifying potential relationship issues.
• Developing and negotiating the contract.
• Ongoing monitoring and management of the relationship.
Case Study 5-3
Alicia Wong
Assignment Question (Group work)
2. What information, if any, is still missing at this point and how would you
go about collecting it? How might this information affect the proposal?
3. What major topic areas would you address in your proposal to the CEO
and what would be your main arguments?