🛒 Procurement & Supply Chain
Professional procurement
Procurement tools applied to negotiation: Kraljic matrix (HBR, 1983), total cost of ownership, target costing, auctions, SRM; work by P. Kraljic, A. van Weele, R. Monczka.
Full detail in the “Origin & history” section below.
Author of the library
Negotiation lecturer at KEDGE Business School
A rare threefold background serving negotiation: teaching, commercial justice and audit, backed by experience as a company director in Bordeaux.
"Make or Buy" is the structural trade-off that consists in deciding whether an activity, a component or a service should be produced in-house or bought externally. Beyond cost analysis, it is a major negotiating lever: the mere fact of holding a credible in-house alternative shifts the balance of power against a supplier. The technique brings together full costs, risks, strategic criticality and the genuine capacity to internalise. Handled well, it turns an imposed dependency into a negotiated choice.
At a glance
Vigilance: low (3.0/10) · Preparation required: 9/10
Indicative profile: it situates the “Procurement & supply chain” family as the Procurement & Supply Chain school practises it, not this technique taken in isolation. Techniques from the same family and school therefore share the same profile. NEGOCOACH editorial rating out of 10, non-experimental · the higher the “relational risk” value, the more costly the technique is to the relationship.
NEGOCOACH assessment
Tactical potential 5.7/10 (effectiveness, impact, discretion) and vigilance low (relational and ethical risk): two distinct readings, deliberately never merged into a single score that would reward risk. NEGOCOACH editorial rating calibrated from the “Procurement & supply chain” family and the “Procurement & Supply Chain” school. Each criterion is rated out of 10; click to understand what it measures.
How far the technique can carry the negotiation in the intended direction when it is well executed.
Strength of the effect produced on the counterpart's perceptions, emotions and decisions.
How hard it is for the other party to notice the technique is being used. A high value = very discreet.
The information, analysis and rehearsal required upfront to use it effectively.
Potential cost to the relationship and to trust if the technique is spotted, refused or fails. A high value = riskier.
Moral acceptability: fairness, transparency and respect for the counterpart's autonomy. A high value = more defensible.
Documented school
The school this technique stems from is documented by recognised work and established practice, without experimental consensus. This indicator qualifies the school, not this technique taken in isolation.
Indicative NEGOCOACH editorial rating, for teaching purposes. For “Relational risk”, a high value signals a cost to the relationship, not a quality.
The "make or buy" question was theorised by the economist Ronald Coase as early as 1937 in "The Nature of the Firm" (Economica): why does a firm produce certain things in-house rather than buying everything on the market? His answer, transaction costs (search, negotiation, contract monitoring), founds transaction cost economics, extended by Oliver Williamson (Markets and Hierarchies, 1975; Nobel Prize 2009), who introduces asset specificity, uncertainty and frequency as determinants of vertical integration. On the strategy side, Prahalad and Hamel ("The Core Competence of the Corporation", HBR 1990) add the core-business criterion: you do not outsource what underpins your competitive advantage. In procurement and supply chain, the tool spread as an operational trade-off framework from the 1980s and 1990s onwards.
Make or Buy is a trade-off method that compares, for a given activity, the internalisation option (Make) and the outsourcing or purchasing option (Buy) along several axes: full cost (materials, labour, depreciation, hidden coordination costs, transaction costs), strategic criticality (does the activity belong to the core business?), risk (supplier dependency, intellectual property, continuity), in-house capacity and skills, flexibility and lead times. Operationally, you map the activity, cost out both scenarios in total cost of ownership (TCO), weight the non-financial criteria, then decide. In negotiation, the decision becomes a lever: demonstrating a credible ability to "do it yourself" (or to re-internalise) raises your BATNA against the supplier, whereas acknowledging a dependency makes it imperative to secure the contract.
Application by context
Faced with a supplier who imposes its prices, the buyer costs out in-house production (a dedicated line, an alternative subcontractor) and presents this option as real, which caps the margin the seller can try to extract.
The heart of the method: on a critical component, the procurement department carries out a Make or Buy analysis in TCO, qualifies an in-house capacity or a dual source, and negotiates supplier rates by relying on this documented alternative rather than on a mere bluff.
In a negotiation with employee representatives, management weighs the outsourcing of a workshop against keeping it in-house; conversely, the staff representatives may argue for internalising a subcontracted service as a lever for employment and for building up skills.
In a supply crisis (a single supplier failing), an accelerated Make or Buy trade-off makes it possible to decide quickly on an emergency re-internalisation or a back-up sourcing, and serves as an argument for renegotiating delivery priorities.
A state arbitrates between producing a strategic capability on its own soil (sovereignty, defence, energy) or importing it: the credible threat of reshoring becomes a lever in commercial and industrial negotiations with foreign partners.
A developer or a property company decides to internalise lettings management, maintenance or project ownership rather than delegate it; having credible in-house teams makes it possible to renegotiate the fees of external providers.
In an international negotiation, the Make or Buy trade-off takes account of cultural differences in trust and contracting: where monitoring a distant subcontractor is costly in coordination, internalisation or a local partnership rebalances risk and relationship.
Transposed to domestic life: arbitrating between doing it yourself (DIY, childcare, cooking) and paying a provider; knowing you can "do it yourself" gives a concrete argument for negotiating a tradesperson's quote.
Counter-techniques
Negotiation is also played on defence. Here is how to recognise this technique when it is used against you, and turn it around.
The signals that give it away
The counters that defuse it
Turn it into an advantage
Name the manoeuvre: said out loud, a technique loses most of its power.
Reacting emotionally instead of coming back to the facts.
"Strengths: anchors the negotiation on quantified facts (TCO) rather than on impressions; creates a credible alternative that mechanically improves the balance of power; forces a distinction between core business and periphery; reduces dependency and secures critical activities; applies at every scale, from a single component to an entire function. Weaknesses: cost analysis is often biased (hidden costs of coordination, quality and re-internalisation underestimated; learning and volume effects poorly modelled); an internalisation decision ties up capital and rigidity; the threat of doing it yourself loses all value if it is not credible; the trade-off is sometimes irreversible in the short term (loss of skills after outsourcing)."
"To be used ahead of any strategic contract renewal or major tender, in order to prepare a solid negotiating lever. Relevant when a supplier holds excessive market power or is slow to concede, when an activity is critical to continuity or competitive advantage, during a supply crisis, or at the point of an industrial investment decision. Also useful for rationalising a purchasing portfolio (Kraljic-style segmentation) and deciding, category by category, on the right sourcing mode. Less suited to low-stakes purchases, where the cost of analysis exceeds the gain."
Business · Coase and the founding riddle of make or buy, In 1937, the economist Ronald Coase posed in "The Nature of the Firm" an apparently naive question: if the market is efficient, why do firms exist instead of buying every task externally? His answer, resorting to the market has a cost (searching, negotiating, monitoring contracts), founds the whole logic of Make or Buy. Oliver Williamson would extend this insight by showing that internalisation is all the greater when an asset is specific and the relationship uncertain, work that earned him the Nobel Prize in Economics in 2009. This theoretical foundation explains why, still today, a buyer who masters their transaction costs negotiates the tipping point between making and buying better.
Business · Re-internalisation as a lever against a single subcontractor, A scenario representative of the industrial sector (unattributed): an equipment maker depends on a single subcontractor for a machined component, who raises prices by 12% at each renewal. The procurement team carries out a full-cost Make or Buy analysis, costs out the installation of an in-house capacity and qualifies a second source. Without even launching the investment, the documented presentation of this credible alternative during the renegotiation brings the increase down to a marginal level and unlocks a volume commitment. The lever was not the bluff, but the factual demonstration that internalising had become a real option.
"Faced with a buyer who waves a Make or Buy around, test the credibility of their alternative: do they really have the skills, the capital, the tooling and the time to internalise, or is it a posture? Ask for concrete evidence (timeline, investments, capacity). Highlight what internalisation would actually cost them, hidden costs, learning curve, quality risks, capital tied up, loss of flexibility, in order to bring the discussion back to full cost. Reinforce your hard-to-replicate value (expertise, intellectual property, volume effect, service) and propose commitments (partnership, cost transparency, shared productivity gains) that make outsourcing more attractive than "doing it yourself"."
"The analysis is only as reliable as its data: poorly estimated hidden costs produce erroneous trade-offs, sometimes irreversible in the short term. The decision commits capital, jobs and skills: outsourcing can destroy know-how lastingly, internalising can freeze an organisation. Ethically, brandishing an internalisation threat known to be unrealistic amounts to manipulation; outsourcing driven solely by cost compression can have social effects (jobs, working conditions at the subcontractor) and sovereignty effects that go beyond the financial calculation. Make or Buy informs a decision but does not replace the strategic judgement and the responsibility that go with it."
"Variants and related tools: the Kraljic matrix (segmentation of the purchasing portfolio into four quadrants according to supply risk and financial weight, which guides the sourcing mode); total cost of ownership (TCO) analysis; transaction cost economics (Coase, Williamson) and core competence theory (Prahalad & Hamel); hybrid forms between making and buying, strategic partnership, joint venture, alliance, co-development, insourcing/backsourcing (re-internalisation); in negotiation, the building and highlighting of the BATNA (best alternative to a negotiated agreement), of which Make or Buy is a concrete variant on the procurement side."
Quick exercise
Answer in your head, then reveal the solution. Memory is built through active recall.
Frequently asked questions
"Make or Buy" is the structural trade-off that consists in deciding whether an activity, a component or a service should be produced in-house or bought externally. Beyond cost analysis, it is a major negotiating lever: the mere fact of holding a credible in-house alternative shifts the balance of power against a supplier. The technique brings together full costs, risks, strategic criticality and the genuine capacity to internalise. Handled well, it turns an imposed dependency into a negotiated choice.
Yes. Used in good faith it stays within a fair negotiation: it structures the exchange without deceiving the other party. Being transparent about your intentions strengthens the long-term relationship.
Reacting emotionally instead of coming back to the facts. The right reflex: slow down and reformulate.
NEGOCOACH does not assess the experimental validation of this technique in isolation. What we document is the grounding of its source school (Procurement & Supply Chain): documented school. Full detail is in the "At a glance" section of this page.
Practise with AI
Copy, paste into your assistant, replace the [brackets]. Works with ChatGPT, Claude, Gemini, Mistral, Perplexity.
Build your plan before the meeting
You are an expert negotiation coach. Help me prepare to use the "Make or Buy" technique in the following situation: [describe your situation]. Give me: the conditions for success, a 3-step script, my counterpart's likely objections and how to answer them.
Rehearse against an AI counterpart
Play the role of my counterpart in a negotiation. I am going to test the "Make or Buy" technique. React realistically and with resistance, do not give in too quickly, then at the end analyse my performance and suggest 3 concrete improvements.
Analyse a past negotiation
Here is how my negotiation went: [paste the exchanges]. Analyse whether the "Make or Buy" technique was used well, what worked, the mistakes made, and spell out precisely what I could have done better.
References
Founding works of the 🛒 Procurement & Supply Chain school this technique belongs to.
Purchasing Must Become Supply Management (Harvard Business Review)
ArticleP. Kraljic · 1983
Purchasing and Supply Chain Management
BookA. J. van Weele · 2018
Purchasing and Supply Chain Management
BookR. M. Monczka et al. · 2015
Category Management in Purchasing
BookJ. O'Brien · 2019
Procurement tools applied to negotiation: Kraljic matrix (HBR, 1983), total cost of ownership, target costing, auctions, SRM; work by P. Kraljic, A. van Weele, R. Monczka.
On video
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Technique map
Every technique sits within a network: what it draws on, what it combines with, where it applies, and how to defend against it.
Spot its signals, neutralise it and turn it around with the defensive playbook on this page.
See the counter-techniques"Make or Buy" is the structural trade-off that consists in deciding whether an activity, a component or a service should be produced in-house or bought externally. Beyond cost analysis, it is a major negotiating lever: the mere fact of holding a credible in-house alternative shifts the balance of power against a supplier. The technique brings together full costs, risks, strategic criticality and the genuine capacity to internalise. Handled well, it turns an imposed dependency into a negotiated choice.
Name the manoeuvre: said out loud, a technique loses most of its power.
Reacting emotionally instead of coming back to the facts.
Our programmes turn theory into a concrete advantage.