When choosing between manufacturing a product in-house or purchasing it from an external supplier/outsourcing, the two most important factors to consider are availability of production capacity and cost. The make or buy decision is one that firms wrestle with more and more today, as there has been a surge towards global outsourcing over the past few decades.
Despite certain benefits of buying a certain part of a product, it can be me more beneficial for a firm to make the product or part in-house, rather than outsource or buy it from a supplier for several reasons. For example, in terms of cost considerations, it can often be less expensive to make the part, when shipping costs and bargaining power of suppliers are taken into account. If a firm has excess plant capacity or any existing idle capacity, making a part in-house can help to absorb fixed overhead costs. Quality control is another factor: if your part or product is being manufactured thousands of miles away, you don’t have the same oversight or control over the quality of the part, regardless of specifications or instructions. Suppliers can also be unreliable, or it may be difficult to find one competent enough to manufacture your product. If you make the part yourself, you have an increased assurance of continual supply. On the flip side, if you are a small firm, the part or product quantity you need or want may be too small to even interest a supplier, leaving you with making the part as your only option. Many firms also like to keep all parts under their own supervision in order to protect their designs or proprietary technology. It is significantly easier for a rival firm to spy if an off-site supplier is making the part or product.
Making a product in-house can evidently be more beneficial from a cost and production standpoint, but pride and labor considerations can also be significant factors. Firms that have been around for a long time may have a certain degree of pride in doing it their way rather than outsourcing, or management may be reluctant to lay off a significant number of workers in order to shift to a supplier. Either way, there are certainly benefits to making, rather than buying a certain product or part in the production chain.