Make vs Buy Calculator

What this tool does

CM8-338 compares making something in-house against buying it in, and does it on the same basis on both sides — which is the part that is almost always missing. It builds a true in-house unit cost including scrap and setup, a true landed supplier cost including freight and duty, adds the annual costs each option carries that nobody attributes to it, and reports the break-even volume at which the decision turns over.

Everything runs inside this single file: no account, no upload, no network request, which matters when the inputs are your cost structure and the outputs are supplier decisions.

Costing the make side honestly

Two things are consistently left out of in-house costs, and both understate them.

Scrap. If three per cent of what you start never ships, you paid for the material, the labour and the machine time on those pieces too. The tool grosses up everything consumed by dividing by one minus the scrap rate, which is the correct treatment — deducting the scrap value from the total is the common error and gets the arithmetic backwards.

Setup. A changeover is a real cost, and spreading it over the batch is where in-house economics quietly fall apart at low volumes. An eighty-five pound setup over five hundred pieces is seventeen pence; over fifty pieces it is one pound seventy, which on a four-pound part is the whole argument. If setup dominates the stacked chart, the answer may be neither making nor buying but running larger batches.

The overhead trap

Absorbed overhead is recorded on every row and, by default, not counted. This is the most consequential setting in the tool and it is worth understanding.

When you stop making a part, the overhead it was absorbing does not leave the business. The building, the supervisor, the depreciation and the quality department are all still there — the same overhead simply spreads across whatever is left. Including absorbed overhead in a make-versus-buy comparison therefore charges the make option with costs that will be incurred either way, and it is the single commonest reason a business outsources something and finds its total cost went up.

Include it only where the overhead genuinely departs with the work: a whole department closing, a building released, a supervisor's post removed. For a single part among many, it almost never does. Costs that would genuinely appear or disappear belong in the extra fixed cost a year field instead, which is counted in full.

Costing the buy side honestly

The buy side has its own systematic understatement, and it has a name: the cost of managing the supplier. Specifying the part, qualifying the supplier, auditing them, chasing the order, inspecting it at goods-in, dealing with the batch that was wrong, and attending the meeting about the late delivery. That work is real, it is continuous, and it lands on people whose time is never charged to the decision that created it.

Estimate the hours honestly and price them. On a low-value part it frequently exceeds the price difference that justified buying in the first place — which is why the sample data puts a management cost on every bought item, including the trivial ones.

Extra stock is the other buy-side cost. A longer supply chain forces you to hold more, and that stock costs money to hold — capital tied up, space, insurance, obsolescence. Fifteen to twenty-five per cent a year of its value is the usual range.

Capacity, and what making really costs

Switch on in-house capacity is the constraint when the resource used to make these items is already the bottleneck, and the arithmetic changes fundamentally.

If a machine is the constraint, an hour spent making a part is an hour not spent on something else, and the contribution that other work would have earned is a genuine cost of making. It is charged per unit at the machine time each unit takes, grossed up for scrap. On a part with four and a half minutes of bottleneck time and a bottleneck earning forty-five an hour, that is nearly three and a half pounds a unit — usually far more than the difference the quote was being argued over.

This is the single most useful thing the tool does, and it explains a pattern that otherwise looks irrational: businesses that are busy should buy in more than businesses that are quiet, even at a higher price, because their own capacity is worth more than the saving. The reverse is also true — when the factory is empty, making something at above the bought-in price can still be right, because the alternative is paying for idle capacity and getting nothing.

The break-even volume

Where one option has higher fixed costs and lower per-unit costs, there is a volume at which they cost the same. Below it the cheaper-to-set-up option wins; above it the cheaper-per-unit one does.

This is the figure to take into a decision where the volume is uncertain, because it converts an argument about forecasts into a single testable question: are we confident of being above or below this number? Where your actual volume sits close to the break-even, the decision is a forecast rather than a calculation and should be revisited when the volume is known rather than defended.

Where no break-even is shown, one option is cheaper at every volume. That is a clear answer, not a missing one.

When the money and the strategy disagree

The strategic column is deliberately excluded from the arithmetic, and it is the column to read last — specifically when the money says buy and the item is marked core.

Capability is asymmetric. Stopping is quick, cheap and entirely reversible on paper; restarting means equipment you sold, people who left, and knowledge that was never written down. A business can outsource its way to a lower cost base and discover it has also outsourced its ability to quote for anything unusual, to fix a problem quickly, or to develop the next product.

None of that means keep everything. It means that a marginal saving on something genuinely core is not a saving, and that the tile counting core items where the money says buy exists to make you stop and argue about those specifically.

The formulas

FAQ

Why is my in-house cost higher than I expected? Almost always scrap and setup. Both are real, both are usually omitted from the mental version of this sum, and setup on a small batch can outweigh the material.

Should I include the operator's wage if they are salaried anyway? Only if the freed time genuinely goes somewhere useful. If the work stops and the person stays, doing less, the labour cost does not actually leave the business — the same logic as absorbed overhead.

The verdict says “too close to call”. Then the money has genuinely not decided it. Choose on lead time, on capacity, on risk, on who you would rather depend on — all of which are better grounds than a difference smaller than the error in your own inputs.

How do I model a service with no material? Put the hours in the labour fields and leave material and machine blank, as the payroll and illustration rows in the sample do. The scrap field then means rework, which is often substantial for creative or analytical work.

What about lead time and flexibility? Not priced here, and they are frequently decisive. A part you can make this afternoon and would wait six weeks to buy has a value this tool cannot see. Note it beside the row and argue it separately.

Saving your work

Items, settings and the report header are written to this browser's local storage as you type. Treat Export .json as the real save, which Import .json restores anywhere. Export CSV gives you the comparison for spreadsheet work. Reset asks twice, then erases everything. There is no undo.

The backup holds your cost structure and supplier prices. Treat it as commercially confidential.

Accuracy & disclaimer

These decisions go wrong in two predictable directions, and the tool is built to expose both. Buying looks cheap because the cost of managing a supplier lands on people nobody charges to the decision. Making looks cheap because absorbed overhead is treated as free and capacity is assumed to be available when it is the constraint.

Where volumes are uncertain, treat the break-even volume as the real output: it tells you how wrong the forecast can be before the decision reverses. And note what no calculator can price — losing a capability is easy and regaining it is not, so a marginal saving on something strategically important is not a saving.