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Criteria for Make-vs.-Buy Decisions

MeadWestvaco, a global packaging solutions provider, has identified a number of new markets in which it sees the potential for profitable growth, says Brian McClure, director of global procurement and supply chain. As the company moves into these new markets, it is faced with a lot of decisions about whether to make or buy goods and services.

"A make-vs.-buy decision can be about anything you use in your operations," says McClure. Regardless of the product or service, "the decision is about looking at what to do in-house and when to source from outside the company."

A make-vs.-buy decision involves a number of criteria. "We look at the overall market potential and how long we think we will be in the market; we look at our current assets since we have a number of different facilities in different geographies and we could have capacity nearby; and we look at technology associated with the product or service in question," he says.

The challenge that MWV and other companies face is that the "buy" solution often looks more attractive in terms of speed to market and reduced overhead than the "make" decision, McClure says. "But some of the risks associated with the "buy" model can be more costly than if you made the investments in your own infrastructure," he says. Moreover, it's not a simple matter of adding up the numbers, since there are always unknowns and uncertainties that are impossible to quantify. "The apparent lowest cost is not always the best option and quantifying the risk is the hardest part," he says. "There are hard and soft numbers and often soft numbers are harder to put into the firm framework of an investment strategy. We struggle with that all the time," McClure says. "We don't always get the calculation right but we are always trying to get better at quantifying the risks involved in outsourcing vs. spending more money to do something internally."

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Keywords: supply chain management IT, logistics IT solutions, supply chain solutions, supply chain systems

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