Article | Strategic Management Journal | October 2013

How Much to Make and How Much to Buy? An Analysis of Optimal Plural Sourcing Strategies

by Phanish Puranam, Ranjay Gulati and Sourav Bhattacharya

Abstract

While many theories of the firm seek to explain when firms make rather than buy, in practice, firms often make and buy the same input—they engage in plural sourcing. We argue that explaining the mix of external procurement and internal sourcing for the same input requires a consideration of complementarities across and constraints within modes of procurement. We create analytical foundations for making empirical predictions about when plural sourcing is likely to be optimal and why the optimal mix of internal and external sourcing may vary across situations. Our framework also proves useful for assessing the possible estimation biases in transaction level make-or-buy studies arising from ignoring complementarities and constraints.

Keywords: Supply Chain; Forecasting and Prediction; Framework; Prejudice and Bias; Mathematical Methods;

Citation:

Puranam, Phanish, Ranjay Gulati, and Sourav Bhattacharya. "How Much to Make and How Much to Buy? An Analysis of Optimal Plural Sourcing Strategies." Strategic Management Journal 34, no. 10 (October 2013): 1145–1161.