Clear trend towards local-for-local! But, when to MAKE or BUY?

As a result of recent and possible upcoming geopolitical events and catastrophes, the strategic importance of adaptability and resilience in supply chains is increasing. In the context of rising local-for-local-driven production strategies, globally operating companies in particular must reflect on the depth of their vertical integration. To create a truly global footprint, companies need to set an absolute focus on technologies that are at the very core of value creation and that can be set up in a cost-competitive way.

Key questions for future-proof operations

Therefore, companies must answer two key questions:

  • Core vs. non-core: What are the core technologies respectively components in the portfolio?
  • Make or buy: What is the best local strategy for non-core products and technologies?

With the respective make-or-buy decision the course is set for future-proof operations. It defines the cost-optimized use of resources, the resilience of the supply chain and the necessary development or reduction of expertise in technologies under consideration.

Clear trend towards ‘BUY’

A clear trend in the market is the stronger tendency to buy for the following main reasons:

  • Economies of scale with specialized suppliers and a high level of automation compensate for eliminated geo-arbitrage
  • Avoidance of capital-intensive build-up of production capacities
  • Technological transformation and new priorities regarding core technologies and products

Balanced cross-functional decision-making as a success factor

The decision between in-house production and outsourcing has long-term implications and must be carefully weighed up. Ultimately, a cross-functional evaluation is required, balancing the financial and strategic aspects.

It is essential that local circumstances are taken into account when making the decision. Companies that are aiming to increase resilience as a driver of the local-for-local strategy, should regard the following aspects as particularly important:

  • Supplier availability in the target market
  • Existing and potential trade restrictions
  • Access-to-talent and local expertise
  • Demand volatility of the target market

Not just in times of organizational models such as dynamic shared ownership and bottom-up driven decision-making cultures, a cross-functional approach is required.

Only clear responsibilities as well as binding governance and committed processes ensure comparable and rapid results.

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Wenzel, M. / Nowak, A.