Take a look at another, a more simplified framework, so it's getting a little less theoretical here and and this is coming from manufacturing strategy. So this is a framework that has been applied more to manufacturing companies. And here you have the three decision criteria, coordination, strategic control and intellectual property. And if coordination is going to be hard, so if coordination is going to be hard because that the kind of knowledge that needs to be shared between buyer and supplier, if the buyer cannot specify, codify what they need from the supplier, then the obvious decision there is going to be you make the product yourself. You're not going to be able to specify things to the to the supplier, so you make the product yourself on the other hand, if you can codify what is needed, if the knowledge is codified or quantifiable, then you're going to say, well let's just send the drawings to the supplier and they can make it for us. Similarly, if the task, if it's a component that can be easily separated from all the other things that are going into making a particular product. If that's easily separable, then you're going to buy if it's going to be a distinct task that's needed, worse is if it is a component that's not easily separable, that is very intrinsic to your product, then you are going to rely on making it. If there's learning by doing, if we have to work towards how this component is going to fit into your product, then you are going to tend towards making it yourself or you should tend towards making it yourself control the second criteria. This should be something that is intuitive because if you want to control and and it's something that you want to to keep control yourself, you would make it yourself. So if there are unique production assets and and there's unique research and development that's involved, you want to make the product yourself. On the other hand, if it's common, if it's a technology that is going to get used by many different buyers of that same product, then there's going to be somebody else out there who can do it better than you. So you're going to outsource that you're going to buy that from from that outsource company intellectual property. We talked about this earlier a little bit and if intellectual property can be easily protected, then you're going to tend towards buying something. But if intellectual property, if the boundaries are not very clear and it's not very clear as to how you can protect your intellectual property or if you're buying from a a particular country that does not have very good protections for intellectual property, you might tend toward making it yourself. So those are some practical ways for for thinking about a make or buy decision. These are the different criteria that you should think about. We talked about buying and making as two different extremes of a continuum. But if you think about it nowadays, what companies are doing is that they are moving towards the middle of this continuum and I call the supply partnerships because it's partnering with a buyer. Or thinking about it from a different perspective, it's something that you would do on your own, that you would give to a buyer and you probably would have some kind of information exchange, some kind of partnership active partnership so that you can get the benefits of both. So if you think about it, what we're saying here is you're trying to get the benefits of that specialist knowledge of the supplier. But at the same time you're saying, well there might be some things that we can do better together or there might be controlled that I don't want to lose and therefore I'm getting into this partnership, I'm putting in an effort to get into this partnership. Now, partnerships can also be on a continuum it could be simply that you have a contract for what quantity that company has to sell to you and what quantity you are committing to purchase or it could be on the other extreme a supplier alliance. It could be an alliance with one supplier in saying that we commit to not only buying this product from you, but also to to developing new products by working with you. So that could also be on one end of the continuum or other when you're talking about a supply chain partnership or a supply partnership, in fact, when you think of a company like Apple, you rarely think of the company doing well because of its supply chain. You probably think of Apple doing well because of its innovation because of the new products that it comes up with. But in fact Apple owes a lot of its success to managing partnerships with suppliers and managing inventories. Tim Cook, who took charge of the supply chain in 1998 came in and and made a big change to their supply chain. In fact he's known for for was saying that you treat your supply chain for making cell phones like a dairy if it's going beyond its use by date, you're in trouble. So he used to always talk about it from that point of view, and he did a lot of things in order to help the turnaround at Apple, he did a lot of things to manage its supply chain, better, to manage its inventories better. And which got Apple back on the trajectory to growth and and doing much better as it has continued. All right, let's take a pause here and and think about two companies that you may know of that you may have heard of and just think about what kind of outsourcing do they do? So Toyota is one company. So think about what kind of outsourcing this Toyota do, what percentage of their trucks and cars are outsourced. And second what I'd like you to think about Boeing's Dreamliner project and what percentage of that particular airplane when they were developing that airplane was outsourced and what was outsourced outside the US. So two different questions here. So here are the answers to those two questions. Toyota outsources approximately 70% off its cars and trucks. So they make they assemble the cars and trucks based on assemblies subassemblies that they get from different suppliers. And what is different about Toyota outsourcing 70% is even then within the US If you look at cars that are manufactured in the US. If you look at the top 10 cars manufactured in the US. Their cars, their five of those cars out of those 10 cars are Toyotas, which means what they outsource, but they outsourced to local suppliers, they outsource from local suppliers and and get their that get their materials from them. On the other hand, if you look at at Boeing and their Dreamliner project, their Dreamliner 787 was offshore. So it was outsourced outside the US to the extent of 35%. Now this may not mean much to you other than the previous project? The 747 was outsourced to the extent of only 5%, so 5% to 35%. And and if you put these these things together, you're seeing that outsourcing and offshoring are are two completely different things, right? So outsourcing could be to to local suppliers. And it doesn't necessarily mean that you're outsourcing outside the country, offshoring means that that you're getting from distant places. The other thing that you might want to note about these two companies is Toyota has had some trouble in the recent years because that can be traced to quality problems from some of its outsource part. And in the case of of Boeing 787, this has been talked about a lot there were a lot of delays in there in that project and and some of that was blamed on offshoring their their part supplies and not keeping track of their suppliers, and that was blamed for the delay of the project. So it tells you about some of the risks of outsourcing that you can manage if you're managing your supply chain better.
