MANUFACTURING – LEAN MANUFACTURING & PRODUCTION PLANNING CALCULATOR
Make Vs Buy
A precise tool.
What is the Make Vs Buy & How does it work?
In lean manufacturing, the decision to **make** a component in‑house or **buy** it from a supplier is evaluated not only on cost but also on flow, flexibility, and waste reduction. A systematic way to compare the two alternatives is the make‑vs‑buy break‑even analysis, which identifies the production volume where total costs of both options are equal.
The total cost of making a part consists of a **fixed cost** (setup, tooling, overhead) plus a **variable cost** that scales with each unit produced. Conversely, buying incurs its own fixed cost (contract, logistics) and a per‑unit purchase price. By plotting these cost lines against volume, the intersection point—called the break‑even volume—reveals the threshold at which one strategy becomes cheaper than the other.
Understanding this threshold helps lean planners align production decisions with demand forecasts, capacity constraints, and strategic goals such as reducing lead time or minimizing inventory. When demand is below the break‑even point, outsourcing may be more economical; above it, internal production typically yields cost savings and greater control.
Q^{*}=\frac{C_{fb}-C_{fm}}{C_{vm}-C_{vb}}
Q* = break‑even volume (units)
Parameters
Result
—
Frequently Asked Questions
What is a make-vs-buy break-even analysis?
It's a method to compare the total costs of making a component internally versus buying it, identifying the production volume where both options cost the same.
How do I use this calculator?
Input your fixed and variable costs for making and buying, then specify your desired production volume to see which option is more economical.
What factors should I consider when deciding to make or buy?
Consider flow efficiency, flexibility, waste reduction, lead times, and supplier reliability in addition to cost.
Can this calculator help with supply chain decisions?
Yes, it can assist in evaluating the financial impact of different sourcing strategies on your overall supply chain.
What if my production volume changes frequently?
You can adjust the production volume input to reflect changes and see how they affect the make-vs-buy decision.
Does this calculator account for quality differences between making and buying?
No, it focuses solely on cost. Quality considerations should be evaluated separately based on your specific needs.
Can I use this calculator for non-manufacturing industries?
While primarily designed for manufacturing, the principles can be adapted to other industries with similar decision-making processes.
Results are for informational purposes only and do not constitute professional advice.