If you run a manufacturing business, whether you’re producing your own product line or making parts for customers, you’ve probably faced the classic question: Should we make it ourselves or buy it from someone else?
It’s a question that comes up more often than most admit. The pressure to control costs, meet deadlines, and maintain quality can make the decision feel like a balancing act. Many business owners quickly assume that outsourcing to countries like China or India is cheaper, but that’s not always the case. Without a structured analysis, it’s easy to make a decision that looks good on paper but creates long-term headaches.
At Nengatu, we’ve worked with manufacturers of all sizes, from small five-person shops to growing teams of a hundred employees. We’ve seen how this decision shapes operations, margins, and even company culture.
Let’s explore the factors that can help you decide when to make, buy, or do a bit of both.
Why the “Make or Buy” Question Matters So Much
This decision affects nearly every corner of your business: cash flow, delivery time, product quality, and even customer satisfaction.
When companies skip a proper evaluation, they often:
- Underestimate total costs (shipping, customs, rework, or logistics).
- Overlook production bottlenecks that affect delivery times.
- Depend too heavily on one supplier.
- Lose valuable knowledge about how their products are actually made.
The right approach starts from the inside out, understanding what you can and should do in-house before looking outside.
Step 1: Start by Considering Making Everything In-House
Before looking elsewhere, imagine you had to make everything yourself. Ask these simple questions:
- Do you have the equipment to make the product?
- Can you afford to buy what you don’t have?
- Do you have the know-how to produce it properly?
- Do you have enough people and space to handle production?
- Can you easily buy the materials you need?
If you answer “yes” to all, you could make it in-house, but that doesn’t mean it’s the best option. Once you confirm feasibility, evaluate all the associated costs:
- Materials: Raw goods, consumables, and scrap rates.
- Labor: Direct time spent on production.
- Packaging and logistics: What happens once the product is done?
- Overhead: Equipment maintenance, utilities, supervision, etc.
A full in-house operation gives you control and flexibility, but it also ties up capital, space, and staff.
Step 2: When to Outsource a Process
Sometimes, you can make most of the product but not everything. Certain processes require expensive equipment, specialized skills, or certifications you don’t have.
For example, imagine a company that customizes cars. They might handle fabrication, wiring, and assembly in-house, but send vehicles out for painting because they don’t have a paint booth.
When outsourcing a process, consider:
- Who starts the product? If you begin it and ship it out for processing, you’ll pay double shipping, out and back.
- Distance and logistics: Sending something overseas for a one-step process rarely makes sense.
- Quality and specifications: The external partner must meet your quality standards consistently.
This approach works best when you want to focus on your strengths and leave specialized tasks to experts.
Step 3: Buying Components - The Most Common Middle Ground
Buying components instead of making everything is often the most practical solution. It reduces complexity and risk while allowing you to focus on your core expertise.
For instance, a metal fabrication shop might be great at cutting and welding but not at designing circuit boards or molding plastic housings. Partnering with companies that specialize in those areas can improve quality and reduce costs.
When evaluating component outsourcing, review:
- Cost vs. in-house production: Even if you can’t make it yourself, estimating your own cost helps you understand vendor pricing.
- Minimum orders and stock levels: Ensure the supplier’s minimum order quantity doesn’t create inventory overflow.
- Logistics costs: A cheaper part from overseas might become expensive once you add freight and import fees.
- Customs and brokers: Factor in hidden costs related to importing.
- Lead times: Longer supply chains mean longer waits. Don’t risk halting your production because a shipment is two weeks late.
This hybrid approach, making some parts and buying others, creates balance. It allows flexibility and usually offers the best cost-to-control ratio.
Step 4: Outsourcing the Entire Product
This is the riskiest option. When you outsource the entire product, you’re essentially handing your business to someone else to make your idea real.
Even with contracts, NDAs, and quality checks, you still give away too much knowledge to one supplier. It’s a convenient option in some cases, but it comes with challenges:
- Trade secrets: Protect your designs and intellectual property at every stage.
- Logistics: Finished products take more space and cost more to transport.
- All previous concerns multiplied: Costs, quality, lead times, and dependency risks all grow with full outsourcing.
Outsourcing everything might seem like the easiest path, but it can expose your business to long-term risk, especially if your supplier changes pricing or stops production.
A Smarter, More Balanced Approach
For most manufacturers, the best solution is a mix of the three:
- Make some parts in-house.
- Outsource processes that require special expertise.
- Buy certain components from trusted suppliers.
Each decision should be evaluated individually. Start with the smallest parts, then sub-assemblies, and finally the full product. This “bottom-up” analysis ensures you understand how each choice impacts cost, quality, and delivery.
And because managing this mix can get complicated, especially as your business grows, having the right system to track it all is essential.
A flexible ERP like Nengatu can help you manage your Bill of Materials (BOM), track which items are made or bought, and keep visibility over costs, suppliers, and inventory. It’s a simple way to stay in control of your production and make better data-driven decisions.
Ready to Make Better Production Decisions?
Whether you’re growing a small workshop or managing a full manufacturing line, knowing when to make or buy is one of the most impactful decisions you can make.
If you want help assessing your current setup and planning your next ERP upgrade, book a call with us. Together, we’ll review your operations, uncover opportunities, and design a system that supports your growth.