Make It or Buy It? A Manufacturer's Hard Lesson From a Year of Shortages
By late 2021, a mid-sized equipment maker I advised was exhausted. A single specialized housing — bought for years from one overseas supplier — had become unreliable. Lead times had stretched from six weeks to five months, prices had jumped, and a missed shipment had idled their line twice. The leadership reaction was understandable and almost universal that year: "Let us just make it ourselves." The make-versus-buy decision deserves more than a reflex, and this scenario shows why.
Make-versus-buy is the choice between producing a component internally or sourcing it from outside. It is not a one-time cost comparison. It is a strategic decision about where you want to own capability, carry risk, and tie up capital — and the right answer depends as much on what the part means to your business as on its unit price.
The numbers everyone forgets
The team's first cut looked compelling. The supplier's unit price plus freight came to more than they thought it would cost to machine in-house. But that comparison was missing most of the real cost of making. When we built it out honestly, the picture shifted.
Tooling and a dedicated machine they did not yet own.
Hiring and training machinists in a tight labour market.
Floor space, maintenance, scrap during ramp-up, and quality inspection.
The management attention pulled away from their core product.
Lower volume than the supplier, meaning they would lose that supplier's economies of scale.
Fully loaded, making the part in-house was not cheaper at their volume. The unit-cost mirage is the classic make-versus-buy trap: comparing a supplier's all-in price against your own marginal cost while ignoring overhead, capital, and risk.
The questions that actually decide it
Is it core? Does this part embody know-how that differentiates you, or is it a commodity? A generic housing is not where you build competitive advantage.
What is the fully loaded cost? Compare the supplier's total landed price to your true internal cost including capital, overhead, and ramp-up — not just machine time.
Where does the risk sit? Making it concentrates capacity risk in your own four walls; buying it concentrates dependency in a supplier. Neither is automatically safer.
How flexible do you need to be? In-house gives control over priority and design changes; outsourcing lets you flex volume up and down without owning idle assets.
Can you reverse it? Buying a machine and hiring a team is hard to undo. Favour decisions you can walk back if demand or supply shifts again.
What they actually did
They did not bring it fully in-house, and they did not stay single-sourced either. They qualified a second supplier closer to home as a deliberate hedge, negotiated a modest buffer of safety stock on the critical housing, and kept their capital for the engineering that genuinely set their product apart. The shortage that triggered the panic became the reason they built a more resilient sourcing strategy rather than a hasty factory.
The lesson is not "never make" or "always buy." It is that a disruption is a terrible moment to make an irreversible decision on incomplete numbers. Make-versus-buy is a strategy question disguised as an arithmetic one, and the firms that treated it that way came out of the shortage years stronger, not just relieved.
If supply shocks are pushing you toward big, hard-to-reverse sourcing decisions, XNM's procurement, sourcing & contract management can help you weigh the real costs and risks before you commit.