In-house work or subcontracting: what pays off with repeat orders?

As the order volume rises, internal utilisation, the external margin avoided, faster scheduling and the process knowledge built up all gain in value. At the same time, in-house work creates investment, staffing and operating risks that with external subcontracting largely lie with the service provider.

This article therefore does not look at the Beamlux service itself. The existing page Laser processing by Beamlux as a service already covers that offering. Here the subject is solely a company’s make-or-buy decision.

What make-or-buy means for surface processes

Make-or-buy describes the decision to provide a service internally or to buy it in externally.

For a surface process, the question is, for example:

Should the company provide staff, equipment and infrastructure itself?

Or should a specialised service provider process the components?

Both variants can be cost-effectively right.

The decision does not depend on whether in-house work is fundamentally cheaper or outsourcing fundamentally more flexible.

What matters is the specific usage profile.

Why individual orders are assessed differently

With a single order, subcontracting has a major advantage:

No permanent investment is necessary.

A company pays a defined price and receives the agreed service.

The service provider carries the investment risk.

For internal processing, on the other hand, equipment might have to be procured, staff trained and a workstation set up.

These fixed costs would fall entirely on a single order.

Subcontracting is therefore often a logical option for rare, specialised tasks.

With increasing repetition, this calculation changes.

When repetition becomes cost-effectively relevant

Suppose a company places the same processing order every month.

The external invoice comes to a fixed amount each time.

After a year this adds up to a relevant total.

At the latest now the question is worth asking:

What would the same work cost internally?

Repetition also offers technical advantages.

Parameters can be saved.

Employees develop a routine.

Set-up times fall.

Quality becomes easier to standardise.

Internal unit costs can therefore fall as experience grows.

A single test order does not have this learning curve.

Capturing the costs of subcontracting

For subcontracting, the invoice amount alone should not be the only thing considered.

The following can also arise:

• Packaging
• Dispatch or transport
• internal logistics
• Ordering and administration
• Goods receipt
• Quality inspection
• Waiting time
• Safety stock

With an on-site service provider the structure looks different.

Here the journey to site can be relevant, for example.

The full annual external costs should be determined from real accounting and process data.

Estimates are often unnecessary because invoices and transport costs are already available.

Capturing the costs of in-house work

On the other side, in-house work involves:

• Investment
• Financing or tied-up capital
• Staff
• Energy
• Filters and wear
• Maintenance
• Workstation
• Training
• Safety organisation
• Quality control

Buying a machine is therefore only one part.

The expected utilisation is particularly important.

A system bought for only a single internal order type carries a higher utilisation risk.

If, on the other hand, it can take on several regularly recurring tasks, cost-effectiveness improves.

Margin and internal value creation

With an external service provider, the price naturally includes their costs and margin.

With in-house work, part of this value creation is shifted into your own operation.

That does not mean, however, that the whole difference automatically becomes profit.

In return, the company takes on:

• Investment risk
• Staffing risk
• Risk of failure
• Process responsibility

In-house work can therefore be cost-effectively attractive if there is sufficient volume.

With weak utilisation, on the other hand, the external margin can be cheaper than fixed costs of your own.

Process knowledge as an asset

One factor that is often overlooked is know-how.

Anyone who regularly carries out a process themselves builds up knowledge about:

• Materials
• Coatings
• Parameters
• typical errors
• Time required
• Quality limits

This process knowledge can have a strategic value.

A machine builder can react more quickly to changes.

A service provider can better assess new customer applications.

A production operation can analyse problems internally.

The technical basics of different energy inputs are covered in the article Pulsed laser or CW: which energy input suits the component?.

With recurring applications, the value of this knowledge grows with every project.

Staff and cover

In-house work requires qualified staff.

That raises an important organisational question:

What happens if the only trained employee is ill or on holiday?

A stable internal process should not depend entirely on one person.

Depending on how important the process is, several employees can therefore be given instruction.

That initially increases the training costs.

In the long term it improves operational reliability.

With subcontracting, this staffing organisation lies with the service provider.

That is a real advantage of outsourcing and should be taken into account in the decision.

Utilisation risk

The greatest economic risk with in-house work is often not the technology.

It is a lack of utilisation.

An investment may be calculated on the basis of 800 hours per year.

In reality, however, only 250 hours of demand arise.

The fixed costs are then spread over considerably less productive output.

A make-or-buy calculation should therefore contain at least three scenarios:

• conservative
• realistic
• optimistic

Ideally, the decision should not work only in the optimistic scenario.

Capacity and on-time delivery

In-house work can improve scheduling.

A company decides for itself when an order is processed.

That is particularly relevant for urgent internal work or short customer deadlines.

Subcontracting, by contrast, means dependence on the partner’s capacity.

A good long-term service provider can be very reliable as well.

This point should therefore be assessed on the basis of real experience.

How often have there been waiting times so far?

How critical were they?

How valuable would processing within a few hours instead of several days be?

These questions can be more relevant cost-effectively than a small difference in the unit price.

Quality and responsibility

With in-house work, process responsibility lies more within your own operation.

Parameters have to be mastered and quality criteria defined.

That increases the internal workload.

At the same time, the company has direct control over the process.

With subcontracting, a defined quality can be agreed contractually.

The service provider takes on the operational implementation.

Which option is the better fit also depends on the strategic importance of the surface.

Is the processing an incidental auxiliary process?

Or does it directly influence a critical product characteristic?

The closer the process is to your own core know-how, the more internal expertise can be an advantage.

A mixed model instead of either/or

Make-or-buy does not have to be an absolute decision.

Many companies can sensibly use a mixed model.

For example:

Standard tasks in-house

Recurring, well-documented components are processed in-house.

Peaks externally

When internal capacity is fully utilised, a partner takes on additional volumes.

Special cases outsourced

Unusual materials or particularly large components are outsourced.

This allows an in-house system to be utilised more fully without having to cover every conceivable application internally.

Hire can also be an intermediate step.

The corresponding project-based option for using a system can be of interest during temporary peaks.

Which data the decision requires

A sound make-or-buy analysis requires at least:

Annual volume

How many components or hours actually arise?

External costs

What was actually paid over the past twelve months?

Transport

What additional logistics costs arise?

Internal process time

How long would in-house processing take?

Staff

How high are the internal notional staff costs?

Investment

Which system and which infrastructure would be required?

Utilisation

Which other applications could use the same system?

Quality

Can the process be controlled reproducibly in-house?

The more of these figures come from real data, the less speculative the decision becomes.

Calculating the break-even point per year

A simplified calculation can look like this:

Outsourcing

price per component × annual volume

plus transport and internal logistics.

In-house processing

annual fixed costs of the investment

plus variable costs per component × annual volume.

At a certain volume the two cost curves intersect.

Below this break-even point, outsourcing can be more cost-effective.

Above it, in-house processing can become cheaper.

This threshold is considerably more helpful than a blanket recommendation.

A material test can supply the internal processing time needed for this.

Conclusion: repeat orders change the make-or-buy decision

In-house work or subcontracting: what pays off with repeat orders?

For rare one-off jobs, outsourcing has clear advantages: no permanent investment, no machinery of your own and less process responsibility.

The more often a job is repeated, the more other factors gain in importance:

1. annual order volume
2. internal utilisation
3. avoided external costs
4. Process know-how
5. Control over deadlines
6. in-house value creation

At the same time, by processing in-house the company takes on investment, staffing and downtime risks.

The best solution can therefore also be a mixed model.

Standard orders in-house, special cases outsourced and project-related peaks covered by additional capacity.

What matters is not a decision of principle.

Anyone wanting to examine in-house processing and outsourcing in economic terms bases that examination on real annual volumes and complete process costs.

Sources

• Fraunhofer Business Unit Cleaning – industrial laser processes — practical examples of series integration, mobile systems and different usage scenarios.
• Fraunhofer ILT – productivity and process integration — assessment of cost-effective laser processes in terms of utilisation, quality and the overall process.
• Fraunhofer IGCV / IVV – resource efficiency in industrial cleaning — economic evaluation of different process chains.

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