Procurement Foundations: Need, Specification and Value · Lesson 2

Need and Demand Analysis, Make-or-Buy Decision

9 min read

Lesson objectives

Separate the underlying need from a proposed solution.
Calculate simple demand while making assumptions visible.
Compare make, buy and hybrid routes using multiple decision factors.

Start with the need, then test demand before choosing the solution

A need describes a gap or required outcome; a solution is one possible way to address it. When a document starts with “we need three units of model X,” it may have jumped to a solution before establishing the need. A better starting point is the required result: added production capacity, shorter response time, coverage of certain hours or higher accuracy. Only then should the organization test whether buying is the right route.

Demand analysis does not always require a complex model, but it does require visible assumptions. Suppose usage over three stable months was 120, 140 and 160 units. The simple average is (120 + 140 + 160) ÷ 3 = 140 units per month. This is only a starting point. If the next month is a peak season, a campaign is planned, or safety stock is required, using 140 without adjustment may mislead.

Make-or-buy factors should not be reduced to two headline numbers: • Capability: Do we have the skill or asset? • Capacity: Do we have enough time and resources? • Speed: When must the result begin? • Control and knowledge: What should remain internal? • Flexibility: Is demand stable or variable? • Lifecycle cost: What are the costs of each option, including transition and management? • Risk and dependency: What is the impact of single-supplier dependence or loss of critical knowledge? • Confidentiality or internal constraints: Do data or requirements require special controls?

A make-or-buy decision does not imply that one route is always superior. Internal capability may be strong but capacity insufficient, or a supplier may be cheaper while creating high dependency. A sound decision states its criteria and weights or decision logic, tests sensitive assumptions, and records why the route was chosen. Before approving the decision, also test a demand-change scenario: what happens if volume falls or rises? An option that looks economical at one volume may lose its advantage at another because of fixed costs or minimum purchase commitments. Recording this sensitivity makes the decision reviewable.

Exercise

Exercise 2 — Make, buy or hybrid? An organization needs night security monitoring immediately for six months. It has a qualified internal team for daytime only; new hiring takes four months. A specialist supplier can start within a week, but sensitive data must be protected. Guided answer: “cheapest” is insufficient. A temporary hybrid route deserves analysis because it meets speed while retaining the internal team, subject to data controls, clear responsibilities, transition planning, and cost-risk comparison.

Check your answer

Feedback for Exercise 2: A good answer separates “Why is this needed now?” from “How will we meet it?” Hybrid may fit these facts, but it is not a universal rule. If the duration, internal capacity or data risk changes, the decision may change.

Lesson summary

Start with the need and test demand, then compare make-or-buy across capability, capacity, speed, control, cost and risk rather than jumping to a supplier.