BIZOMAT MAKEOS · Money
Make or Buy (In-House Cost against a Supplier Price, Break-Even)
Is it cheaper to make this part in-house or buy it, at what quantity do the two cost the same, and how much does the right choice save at my volume?
Make-or-buy comparison: in-house unit cost from cycle time at your machine-hour rate plus material, with tooling and set-up as fixed cost; bought cost from the supplier price plus any one-off tooling or qualification charge; total cost at the planned quantity, the break-even quantity where the two totals meet (as the process break-even tool), and the cheaper option with its saving.
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How this tool works
Inputs, units and where to find them
| Input | Unit | Typical source |
|---|---|---|
| Planned quantity | units | Number of parts needed over the period compared. |
| Make | ||
| Tooling, fixtures and set-up (fixed) | $ | One-off cost to make in-house: tooling, fixtures, programming and set-ups. |
| Cycle time per part | min | Machine time per part including handling. |
| Machine-hour rate (machine and operator) | $/h | Hourly rate of the machine and operator (for example from the machine hour rate tool). |
| Material per part | $ | Material and bought-in items per part. |
| Buy | ||
| Supplier price per part | $ | Supplier’s price per part. |
| One-off supplier tooling or qualification | $ | One-off charge for buying: supplier tooling, first-article and qualification. |
| Freight and inspection per part | $ | Freight, receiving inspection and handling per bought part. |
What each input means
Open an input to see what it is, its units, the worked example and the common mistakes, with a small diagram.
What this means: Planned quantity
- What it is
- How many parts you need over the period being compared, for example a year or the product life.
- Units and format
- Enter a number in units: a count of units. The form accepts 1 units or more. Use a whole number. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with 2000 units as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Larger quantities spread the fixed costs and favour the option with the lower cost per part.
Make
What this means: Tooling, fixtures and set-up (fixed)
- What it is
- The one-off cost of making the part in-house: tooling, fixtures, programming and set-ups over the period.
- Units and format
- Enter a number in $: an amount of money; use one currency for every money input. The form accepts $0 or more. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with $6000 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
What this means: Cycle time per part
- What it is
- The machine time per part made in-house, including loading and unloading.
- Units and format
- Enter a number in min: minutes. The form accepts 0 min to 10000 min. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with 4 min as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- In-house cost per part rises in direct proportion to cycle time.
- Get it right
- Minutes per part, not parts per minute.
What this means: Machine-hour rate (machine and operator)
- What it is
- The cost of one hour of the machine and its operator, including overhead, from your costing or a machine hour rate calculation.
- Units and format
- Enter a number in $/h: money per hour. The form accepts $0/h to $100000/h. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with $105/h as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
What this means: Material per part
- What it is
- The cost of material and bought-in items for one part made in-house.
- Units and format
- Enter a number in $: an amount of money; use one currency for every money input. The form accepts $0 to $10000000. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with $3 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
Buy
What this means: Supplier price per part
- What it is
- The price the supplier quotes for one part at the planned quantity.
- Units and format
- Enter a number in $: an amount of money; use one currency for every money input. The form accepts $0 to $10000000. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with $12 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Get it right
- Use the price for your actual order size; quotes often change with quantity.
What this means: One-off supplier tooling or qualification
- What it is
- The one-off cost of buying the part: supplier tooling, first-article inspection and qualification charges.
- Units and format
- Enter a number in $: an amount of money; use one currency for every money input. The form accepts $0 or more. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with $1500 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
What this means: Freight and inspection per part
- What it is
- The extra cost per bought part for freight, receiving inspection and handling.
- Units and format
- Enter a number in $: an amount of money; use one currency for every money input. The form accepts $0 to $1000000. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with $0.5 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
Method and formulas
- Make: variable cost = cycle time ÷ 60 × rate + material; total = fixed + variable × quantity.
- Buy: variable cost = price + freight; total = one-off charge + variable × quantity.
- Break-even quantity = (fixed_make − fixed_buy) ÷ (variable_buy − variable_make) (as the process break-even tool).
- Example: making costs 10 a part plus 6000 fixed; buying 12.5; break-even at 1,800 parts; at 2000 make, saving 500.
Limitations
- Linear costs; capacity limits, overtime and learning effects change the picture.
- Strategic factors (know-how, supply risk, lead time) are not costed.
- Example values are illustrations. Replace them with values for your actual task.
Typical uses
- Decide whether to bring a bought part in-house
- Check a supplier quote against your own cost
- Find the volume at which making pays
Who it is for
- Manufacturing engineers
- Purchasing managers
- Business owners
What you get
- In-house and bought unit variable cost
- Totals at the planned quantity
- Break-even quantity and decision
Interpreting the result
- If the machine would otherwise stand idle, use its marginal rate, not the full machine-hour rate.
References
- Machinery’s Handbook, 29th edition (Industrial Press, 2012), printed pp. 143–146, 1153–1160. Topic reference; no source tables or recommended settings are reproduced.
Learn the Concepts Behind This Tool
These BIZOMAT Library readings explain the method this tool uses, with worked examples.
Method explained here · Library collection
Make or buy: choosing between in-house manufacturing and outsourcing
In Manufacturing Operations and Design for Manufacture
What it covers: A practical framework for deciding whether to make parts in-house or outsource them: volume, utilisation, capability, cost, control, risk and how to protect your design.
BIZOMAT tools are screening and decision-support utilities. Verify important financial, engineering, safety, legal or operational decisions using appropriate professional standards and your organisation’s approved data.
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