Moving from Make/Buy to Strategic Sourcing: The Outsource Decision Process

Abstract

Companies are paying increasing attention to outsourcing components and processes. In most of today's business environments the decision to outsource has many ramifications, not least the impact on capital budgets. On the one hand, the decision to outsource releases capital that can be used elsewhere. On the other, the decision to continue in-house keeps open strategic options for the product in question, but has knock-on effects due to the reduction in capital. However most companies separate the process of making capital allocations from the purchasing function. This paper examines how one company moved to a position where purchasing was integrated with top functions, especially capital budgeting. It achieved this by working off the strategic sourcing model described in this paper.