Make, buy or cooperate?

Products and productivity

Many companies must determine whether they should produce goods needed for production themselves or whether they should buy them. This product-related decision has a broad impact on the company’s procurement logistics and must be considered. Savings achieved in production or the warehouse can be offset by higher logistics costs. A similar situation exists in the procurement program or product design at a company. Here, too, the inclusion of logistics is of enormous importance in order to work as productively as possible.

Optimal program for low costs

A procurement program defines which types of goods are to be procured in which quantities and in which time frame within a certain planning period.
A crucial factor in procurement logistics is deciding about expansion of the procurement program. These can arise from things like the requirements of research and development or production for specific feedstock. The scope of a procurement program should be kept as narrow as possible because an extension of the procurement program generally entails increased logistics costs, particularly for warehousing. This effort can be supported by standardizing feedstock with the help of norms and the application of pre-assembled semi-finished products.

When designing a product, the packaging materials must also be considered. From a logistics standpoint, packaging material that is easy to transport and store and does not take up large amounts of storage space should be used whenever possible. This is the case, for example, with foldable packaging material [1].

In-house production or external procurement

An issue that is closely related to the determination of the procurement program is the question of whether feedstock for production should be made by a company itself or acquired from a third party. The issue is also known as make or buy Make or buy . In recent years, a trend has been observed in some sectors toward reducing the depth of production in companies in favor of increased external procurement [2]. This entails an expansion of the procurement program and tends to increase the complexity of procurement logistics Procurement logistics as the number and intensity of supplier-consumer relationships increase [1].

Depending on the item to be procured, either one of two procurement concepts can be applied: unit sourcing or modular sourcing. The key question concerns whether a company procures an individual item or a component group. A car, for example, consists of thousands of individual components or units. This is why many companies procure entire component groups rather than individual components - i.e., function groups, modules or components with complex structures - from a modular or system supplier. For example, automakers receive fully assembled seats, cockpits or doors. This procurement concept is called “modular sourcing”. It enables a company to concentrate on its core skill as well as to reduce the complexity of logistics.

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