Manufacturing & IndustrialMake vs Buy
Make vs Buy Cost Calculator
Compare internal manufacturing costs against external contract purchasing to identify the break-even production quantity where making in-house is cheaper.
In-House Manufacturing vs Supplier Outsourcing
Recommendation
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at current volume
Break-Even Crossover
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units where Make = Buy
Total In-House Cost
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Make total
Total Buy Cost
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Vendor total
Make vs Buy Crossover Volume Formula
Crossover Units = Internal Fixed Tooling ÷ (Effective Buy Unit Cost - Internal Variable Unit Cost)- Internal Make: High upfront tooling and setup costs, but lower variable material and direct labor per unit.
- External Buy: Zero or low tooling, but higher per-unit vendor invoice price, inbound freight, tariffs, and receiving inspection.
Step-by-Step Worked Example
Scenario: Evaluating in-house stamping vs purchasing from an outside vendor for 3,000 units
Calculation Steps:
- Effective Buy Unit Cost = $20.00 + $1.50 + $0.50 = $22.00 / unit
- Unit Savings from Making = $22.00 - $12.00 = $10.00 / unit
- Break-Even Crossover = $20,000 / $10.00 = 2,000 units
- Total Make Cost at 3,000 Units = $20,000 + ($12 × 3,000) = $56,000 ($18.67/unit)
- Total Buy Cost at 3,000 Units = $22.00 × 3,000 = $66,000 ($22.00/unit)
Result: Making in-house is recommended at 3,000 units, saving $10,000. Crossover point is 2,000 units; below 2,000 units, outsourcing is cheaper.
How to Use This Calculator
- 1Enter internal in-house tooling, fixture investment, and variable unit cost.
- 2Enter vendor quote per unit, inbound freight, duties, and inspection costs.
- 3Input planned annual production volume to review recommendation.
Assumptions & Limitations
- Internal plant has available floor space and machine capacity without displacing higher-margin work.
- Vendor quality and delivery reliability meet internal factory standards.
Frequently Asked Questions
What non-financial factors affect the make-or-buy decision?
Proprietary IP protection, supply chain lead time risk, internal core competency focus, supplier quality control, and factory machine capacity availability.
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