A “Make-or-Buy” decision is when you wonder if you’ll save money by fabricating parts in-house instead of purchasing them pre-made from a supplier. In a Make-or-Buy decision, the most important factors to consider are availability of production capacity, labor costs, material costs, and total time.
A Teflon™ coating or powder spraying shop may decide to purchase any part if it is cheaper to buy or if the shop does not have sufficient production capacity to produce it in-house. The Make-or-Buy decision is one that managers and shop owners must consider frequently in order to keep operational costs as low as possible.
The following is an example of a cost analysis for the Make-or-Buy decision that analyzes industrial hooks, assuming that the shop has sufficient production capacity. We took hook part number C-4076 as a typical example. This hook is a standard “C” style hook that is 4” long, made of 0.076 wire that can hold up to 20 lbs. We’ll consider how much it might cost to produce 2,000 hooks, which is a standard shipping quantity.
- Wire cost: $30 (1,420 feet of 0.076 diameter wire; 8.5” long hard drawn spring steel wire to produce 4” long standard “C” style hooks)
- Cutting time: 4 hours (500/hr.)
- Forming time (2 ends per hook): 5 hours (400/hr.)
- Employee pay rate: $12 per hour
- Labor cost for 2,000 hooks: $108
Total Cost: $138 ($30 wire cost + $108 labor)
- 2,000 pre-made C-4076 hooks: $67.60
- Shipping: $8.55
Total Cost: $76.15
Savings from buying hooks vs. making them in-house:
$138 – $76.15 = $61.85 (45% savings)
The above cost analysis for buying vs. making hooks in-house shows that it is more cost effective to purchase the C-4076 C-style standard hooks rather than to produce them in-house.
Manufactured from hard drawn spring steel, these hooks survive repeated stripping and offer higher loading capabilities than mild steel hooks. These hooks are ideal for wider parts or multiple styles of parts with varying thicknesses. For maximum loading and repeated usage, ensure the product being hung seats into the bottom of the “C.”