About a decade ago I visited a toilet seat manufacturer in Denmark. What struck me most about this company (other than the fact they made very nice toilet seats) was the almost total vertical integration. They moulded the plastic, pressed and fabricated the fixings, bagged the screws - almost everything was made from scratch. In 21st century Europe, this was highly unusual.
Every time an organisation buys something it’s made the choice NOT to make it itself. Most of the time the decision is easy. If you need a new computer, you could theoretically build one from scratch (although mining and processing tantalum and the like might prove tricky), but the total cost, including the time to build, learning how to do it etc. would be much higher than buying one from a company that specialises in manufacturing computers.
But when the cost benefits aren’t so obvious, why do organisations buy rather than make? Assuming there’s a need to meet and it’s not a capacity based decision, there are 3 main reasons.
Convenience – to save time and effort by buying a product or service that’s ready-made, rather than re-inventing the wheel.
Expertise – to be able to focus on core competence while the supplier provides theirs, optimising efficiency and quality.
Innovation – an expert in the field should also be at the forefront of the applicable technology and developments, ensuring that the product or service provided remain among the best in class.
When selecting suppliers or assessing ongoing relationships, these points should be among the criteria. Are your suppliers convenient to deal with? Do they demonstrate that they are experts in their field? Do they regularly bring you innovative ideas and solutions? Whether you’re producing toilet seats or spacecraft, if you’ve decided to buy rather than make, these should be expectations, not optional extras.