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

38 Pages Posted: 27 Sep 2006 Last revised: 25 Feb 2012

See all articles by Phanish Puranam

Phanish Puranam

INSEAD

Ranjay Gulati

Harvard Business School - Organizational Behavior

Sourav Bhattacharya

University of London - Royal Holloway College

Date Written: September 1, 2006

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 moving away from individual transaction level analysis, to a consideration of complementarities across and constraints within modes of procurement. We thus create analytical foundations for making empirical predictions about when plural sourcing is likely to be optimal and the optimal mix of internal and external sourcing. Our framework also proves useful for assessing the possible biases in transaction level make-or-buy studies arising from ignoring complementarities and constraints.

Keywords: Plural sourcing, Firm boundaries

Suggested Citation

Puranam, Phanish and Gulati, Ranjay and Bhattacharya, Sourav, How Much to Make and How Much to Buy‘ An Analysis of Optimal Plural Sourcing Strategies (September 1, 2006). Available at SSRN: https://ssrn.com/abstract=932606 or http://dx.doi.org/10.2139/ssrn.932606

Phanish Puranam (Contact Author)

INSEAD ( email )

1 Ayer Rajah Avenue
Singapore, 138676
Singapore

HOME PAGE: http://www.insead.edu/facultyresearch/faculty/profiles/ppuranam/

Ranjay Gulati

Harvard Business School - Organizational Behavior ( email )

Soldiers Field Road
Morgan 317
Boston, MA 02163
United States
617-495-8554 (Phone)
617-496-6568 (Fax)

HOME PAGE: http://www.hbs.edu

Sourav Bhattacharya

University of London - Royal Holloway College ( email )

Egham
Surrey
TW20 0EX
United Kingdom

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