The decision to outsource (Make-or-Buy dilemma) should not be limited to a simple comparison of direct costs. It requires an in-depth analysis covering the financial, strategic and operational dimensions.

Here are the main questions to ask yourself, structured by area:

1. Financial Issues (Profitability and Balance Sheet)

• What is the real cost differential? The internal cost of production (including the depreciation of the machines) must be compared with the selling price offered by the supplier.
  • If the supplier is cheaper, the decision seems obvious, but you have to check the sustainability of this price.
  • If the supplier is more expensive, does the savings made on the investment (not buying the machine) compensate for the additional operating cost? The calculation of the Net Present Value (NPV) is used to determine the decision threshold.
• What is the impact on capital employed (ROCE)? Outsourcing often makes it possible to lighten the balance sheet by avoiding capital expenditure (Capex) and reducing the Working Capital Requirement (WCR) through an increase in accounts payable and a possible decrease in inventories. This mechanically improves the return on capital employed (ROCE) ratio, but this financial optimization must not be to the detriment of industrial control, as the Boeing case has illustrated.

2. Strategic Issues (Control and Competences)

• Do we lose control of a key skill? The risk of transferring critical skills to the supplier must be assessed, which could ultimately create a supplier monopoly situation or weaken the company’s competitive advantage.
• What is the bargaining power? Outsourcing can change the balance of power. The analysis of the internal cost of production can be used as a negotiating weapon to put pressure on the supplier’s prices.
• Do we already have the capacity in-house (Tolling)? Before outsourcing or investing in a joint venture, it should be checked whether excess industrial capacity already exists elsewhere in the company, which would allow economies of scale to be achieved.

3. Operational Issues (Quality and Hidden Costs)

• Have transaction costs been underestimated? Economic theory (Williamson) reminds us that the customer-supplier relationship generates coordination costs (time, energy, control) that are often underestimated by simple accounting logic. The lack of trust and the asymmetry of information create additional costs.
• Are quality and safety guaranteed? The cost pressure imposed on subcontractors to improve ROCE can lead to a deterioration in product quality and safety, ultimately transferring losses and risks to the end customer and shareholders.

4. ESG (Environment and Responsibility) Issues

• Is it “greenwashing”? Outsourcing often improves the company’s direct carbon footprint (Scope 1) by transferring emissions to the supplier (which then appear in the company’s Scope 3). It is necessary to ensure that the operation does not simply aim to “clean up” the CSR report without reducing the real impact on the planet.
• What is the full cost of carbon? The choice of a supplier, especially if it is far away (“cross-border”), must include a total carbon footprint (transport, energy mix of the supplier’s country) and the potential cost of carbon credits.

What is the social impact of the transfer? Does  outsourcing result in a closure or transfer of ownership of a factory? How will the issue of staff working in the plant concerned be handled?