Strategic sourcing: a progressive approach to the make-or-buy decision

Historically, many firms have made sourcing decisions - commonly known as make-or-buy decisions - based disproportionately on unit cost, with insufficient regard for strategic or technological issues. This cost-focused approach has led to competitive tragedy for many firms and entire industries. The...

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Bibliographic Details
Published in:Academy of Management perspectives 1992-02, Vol.6 (1), p.23-31
Main Authors: Welch, James A., Nayak, P. Ranganath
Format: Article
Language:English
Subjects:
Automation
Buy or make decisions
Competition
Competitive advantage
International
Manufacturing
Outsourcing
Product development
Strategic planning
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Summary:Historically, many firms have made sourcing decisions - commonly known as make-or-buy decisions - based disproportionately on unit cost, with insufficient regard for strategic or technological issues. This cost-focused approach has led to competitive tragedy for many firms and entire industries. The strategic sourcing model augments the traditional cost analysis by considering strategic and technological factors. The model examines: 1. process technology's role in providing competitive advantage, 2. maturity of the process technologies under consideration, and 3. competitors' process technology positions. After following the model's guidelines, the tentative sourcing decision will be one of the following: 1. make, 2. marginal make, 3. develop internal capability, 3. buy, 4. marginal buy, or 5. develop suppliers. Using this framework in conjunction with a cost analysis can help companies make the sourcing decisions that will move them toward world-class stature.
ISSN:1558-9080
1943-4529
DOI:10.5465/ame.1992.4274302