Make-or-buy decision

A make-or-buy decision analyzes whether an organization should produce a good or service internally or obtain it from an external supplier.

Transaction cost economics: An economic framework explaining how firms choose between internal organization and market exchange. It explains how asset specificity, uncertainty, and transaction frequency shape sourcing choices.
Outsourcing: The contracting of activities or services to an external organization. It is the most direct form of choosing to buy rather than make.
Insourcing: The performance of work within an organization rather than through an external provider. It names the internal option opposite outsourcing in a sourcing decision.
Firm boundaries: The limits of activities and transactions coordinated within a firm rather than through markets. Repeated make-or-buy decisions determine which activities remain inside the organization.
Total cost of ownership: An accounting approach that estimates all costs of acquiring, operating, and disposing of an asset. It exposes supplier-related costs that a quoted purchase price leaves out.
Vertical integration: The ownership of multiple stages of production or distribution within one organization. It represents a durable strategy of bringing supplier or customer activities inside.
Offshoring: The relocation of business activities to another country, whether internally or through suppliers. It changes where work occurs, not necessarily whether the organization makes or buys it.
Hold-up problem: A bargaining problem in which one party exploits another's dependence after relationship-specific investment. Specialized investment can make either a firm or its supplier vulnerable after contracting.
Opportunity cost: The value of the best alternative forgone when a choice is made. Internal production consumes capacity that could create value elsewhere.
Contract manufacturing: An arrangement in which one company manufactures goods for another under contract. It lets a firm buy production while retaining responsibility for the product and brand.

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