Today, companies have to make multiple decisions to demonstrate high-quality performance, choose appropriate resources, and achieve a competitive advantage. Chief procurement officers (CPOs) have to study what customers want and how to increase service level by choosing effective outsourcing and avoiding organizational failures. According to Schwartingm and Weissbarth, manufacturing units are developed on the basis of one actual decision that is an informed make (in-house) or buy (outsource) decision (5). This step plays an important role in companies, as it is the possibility to make a strategic choice through the evaluation of costs, benefits, and risks in outsourcing and in-house activities.
On the one hand, it seems that CPOs have only two possibilities in this decision – either to make or to buy. On the other hand, the report developed by Schwartingm and Weissbarth underlines the significance of three pillars, namely business strategy, risks, and economic factors (6). Any company is free to choose between several alternatives due to the existing factors. For example, a business strategy helps to specify the product’s importance, and managers should identify the impact of technologies, working processes, and human skills on the current environment and future changes. Therefore, variations cannot be neglected in this decision-making process as they become evident.
When the time to choose between outsourcing or in-house comes, companies must pay attention to three issues that go into this decision: strategic importance, the possibilities to mitigate risks, and the presence or absence of economic benefits. Emotions need to be excluded because they lead to fixing processes that become ineffective and decrease the full potential of decision-making (Schwartingm and Weissbarth 6). Companies should follow particular tasks and meet the goals in terms of their business.
There is a clear list of criteria that make a company open to outsourcing. For example, if a company wants to reduce costs, gain output flexibility, supervise fewer workers, or control external expertise, outsourcing turns out to be a good option (Schwartingm and Weissbarth 8). In addition, it is necessary to think about internal and external risks that may influence organizational performance. According to Schwartingm and Weissbarth, companies may be challenged by holdup risks (suppliers raise prices), switching costs, supply market risks (political and organizational environments of suppliers), transportation arrangements, and ethical concerns (intellectual property) (7). These risks affect the supplier selection process and the conditions of outsourcing agreements.
Regarding the existing pillars of decision-making and the threats that in-house or outsourcing activities could bring, any company tries to evaluate the possibilities of different scenarios beforehand. Schwartingm and Weissbarth focus on the necessity to assess core competencies objectively while developing a contract in buy decision-making (11). Attention should be paid to examining suppliers’ cost structures, as the lowest bid is not always sufficient. The financial health of potential suppliers is also critical since it determines their level of dependence on this contract. Finally, the best options must be determined before any commitments are made because, in the majority of cases, such contracts are hard to break due to their multiple-year span.
In general, the decision of make versus buy requires much work and multiple evaluations from a company. It is wrong to rely on personal judgments or emotions in this process but recognize the worth of such issues as business strategy, economic factors, and potential risks. CPOs are responsible for such decision-making, and their choices that are based on specific criteria predetermine the growth and competitive advantage of companies.
Work Cited
Schwartingm, Detfel, and Robert Weissbarth. “Make or Buy: Three Pillars of Sound Decision Making.” Strategy&, 2011, Web.