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Outsourcing analysis: definition and important aspects for buyers
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Outsourcing analysis in a nutshell:
The outsourcing analysis is a systematic investigation to evaluate the cost-effectiveness of in-house versus external services for products or services. For purchasing, it is an important tool for making well-founded make-or-buy decisions and identifying cost potential through outsourcing.
Example: An automotive supplier conducts an outsourcing analysis for its plastic injection molded parts and determines that outsourcing production to a specialized supplier reduces unit costs by 23% from EUR 12.50 to EUR 9.60, while at the same time avoiding investments of EUR 2.5 million for new machines.
Contents
Outsourcing analysis: An introduction
What is an outsourcing analysis?
The outsourcing analysis, also known as the "make or buy analysis", is a strategic tool in procurement management. It is used to make decisions on whether certain products or services should be produced internally (make) or purchased externally from suppliers (buy). Costs, resources, competencies and risks are comprehensively evaluated in order to determine the optimal procurement strategy for a company.
Core elements of the outsourcing analysis
Significance for purchasing
In purchasing, outsourcing analysis is essential for making well-founded decisions about the procurement strategy. It helps to optimize costs, increase efficiency and build strategic partnerships with suppliers. The analysis enables buyers to determine when it makes sense to use external suppliers in order to increase flexibility and focus on core competencies.
Application of the outsourcing analysis in practice
The outsourcing analysis helps companies to make an informed decision between in-house production and outsourcing by comparing costs and resources. Not only financial aspects, but also skills and risks are taken into account.
Calculation example
Scenario: A company previously produced a component itself and is now considering purchasing it from an external supplier.internal production costs per year:
- Material costs: € 200,000
- Labor costs: 150,000 €
- Fixed costs (depreciation, maintenance): € 50,000
- Total internal costs: € 400,000
Offer from the supplier:
- Price per component: 35 €
- Required quantity per year: 10,000 pieces
- Total external costs: € 35 x 10,000 = € 350,000
- Additional costs (transportation, quality control): 20.000 €
- Total external costs: € 370,000
Comparison:
- Internal costs: € 400,000
- External costs: € 370,000
- Savings through outsourcing: € 30,000 per year
Decision: As outsourcing enables annual cost savings of €30,000 and offers additional benefits such as freeing up resources and focusing on core competencies, it is recommended that the component be procured externally.
Evaluation and strategic findings
✓ Critical success factors
→ Holistic cost analysis: inclusion of all relevant costs including hidden expenses such as quality assurance and logistics
→ Strategic competence analysis: Careful evaluation of core competencies and their long-term importance for the company
→ Supplier management: building stable partnerships with efficient suppliers for sustainable outsourcing
⚠ Challenges and limitations
→ Dynamic cost factors: fluctuating market prices and exchange rates make long-term cost forecasts difficult
→ Dependency risks: Risk of being too closely tied to individual suppliers for strategic components
→ Loss of expertise: Possible erosion of internal skills due to extensive outsourcing
Future trends and implications:
"The outsourcing analysis is becoming a strategic tool for resilient supply chains."
→ Digital decision support through AI-based analysis tools
→ Integration of sustainability criteria into the evaluation matrix
→ Flexible hybrid models between make and buy
→ Increased consideration of supply chain risks in the analysis
Conclusion on the outsourcing analysis
The outsourcing analysis is an indispensable strategic tool for modern companies. By systematically evaluating costs, resources and risks, it enables a well-founded decision to be made between in-house production and outsourcing. Success lies in the holistic consideration of all relevant factors and the careful weighing up of long-term strategic effects. Particularly in the context of increasingly complex supply chains and digital transformation, outsourcing analysis is becoming increasingly important for sustainable corporate decisions.
