Make or Buy in a Machine Shop: In-House or Subcontract an Operation?
November 6, 2026
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Every shop meets the same question again and again: do this operation in-house, or send it to a subcontractor? Grinding when the grinder is booked, a heat treatment, a wire EDM cut on a machine you do not own, a batch of turning when the lathes are full. The make-or-buy decision is usually taken in a hurry, by comparing your hourly rate with the subcontractor's price per piece. That comparison is almost always wrong, in both directions.
This guide shows how to compare the two properly for one operation on one job, with the costs that the quick comparison leaves out, a worked example in EUR with its break-even quantity, and what to write in the quote either way.
What "make" really costs
Doing it in-house costs the setup plus the cycle time at your burdened hourly rate for that machine. That is the number most shops already have. Two things are easy to miss.
- Setup is paid once per batch. On a small batch it is a large share of the cost, which is why in-house work looks expensive on small quantities and cheap on large ones.
- A full machine has an opportunity cost. If the machine is booked, the hour you give this job is an hour you take from another one. The real cost of that hour is your rate plus the margin of the job that waits or is turned away. When the machine is idle, the opposite is true: the hour costs less than the full rate, because the overhead is paid anyway. See pricing on capacity for the logic.
What "buy" really costs
The subcontractor's price per piece is only the first line.
| Cost of outsourcing | Why it is easy to forget |
|---|---|
| Minimum order charge | On a small batch the minimum is the price |
| Transport, both ways | Two trips per batch, sometimes more if parts come back for rework |
| Packaging and paperwork | Delivery note, packing, protection of finished surfaces |
| Receiving inspection | You are still responsible for the parts you deliver |
| Lead time | Days at the subcontractor's queue, plus transit, on your due date |
| Risk | A scrapped or late batch at the subcontractor is still your problem with the customer |
The handling part of that list is real work in your shop, and it should be priced like any other operation. Many shops cover it with an uplift on the subcontractor's invoice; the uplift is right as long as it is set from these costs and not from habit. The same principle applies to every secondary operation.
Worked example: cylindrical grinding of a shaft batch
A batch of shafts needs two diameters ground. In-house, on your cylindrical grinder: 1 h setup and 6 minutes per piece at €75/h. The subcontractor quotes €5.50 per piece with a €250 minimum order, transport is €40 each way, and your packing, paperwork and receiving inspection take 1.5 h at €45/h, €67.50 per batch. These are example figures, not market prices: replace them with your own.
- In-house: €75 + €7.50 per piece.
- Outsourced: the larger of €5.50 per piece and €250, plus €147.50 per batch.
| Batch | In-house total | Per piece | Outsourced total | Per piece |
|---|---|---|---|---|
| 20 pieces | €225.00 | €11.25 | €397.50 | €19.88 |
| 40 pieces | €375.00 | €9.38 | €397.50 | €9.94 |
| 43 pieces | €397.50 | €9.24 | €397.50 | €9.24 |
| 60 pieces | €525.00 | €8.75 | €477.50 | €7.96 |
| 200 pieces | €1,575.00 | €7.88 | €1,247.50 | €6.24 |
On paper the break-even is 43 pieces: below it, grinding in-house is cheaper; above it, outsourcing is. The quick comparison, €7.50 of in-house cycle against €5.50 at the subcontractor, would have sent the 20-piece batch out and paid almost twice as much for it.
Two corrections to the paper result. If the grinder is booked for the next two weeks, the in-house hours of the 200-piece batch carry the margin of the work they displace, and outsourcing wins by more. If the customer's due date is closer than the subcontractor's lead time plus two transits, outsourcing is not an option at any price.
Beyond the cost: when to keep it in-house anyway
- The operation is critical to quality. A ground diameter that defines the fit of the whole part is easier to control on your machine, measured by your inspector.
- The lead time is the selling point. If you win the job because you deliver in a week, a subcontractor in the chain can lose it for you.
- Volume is steady. An operation you outsource every week is a candidate for a machine of your own; the money you pay out every month is the budget.
And send it out anyway when the process needs equipment or approvals you do not have (heat treatment, plating, special processes), when your machine is the bottleneck, or when the subcontractor is simply much better at it.
What to write in the quote
Whichever way you decide, the quote should not change when the decision does. Price the outsourced operation as its own line, with the subcontractor's price, the handling and your uplift; state the lead time that includes the subcontractor; and say who is responsible for the parts while they are away. If you later bring the operation in-house, the customer's price stays the same and only your margin moves. The job cost sheet is the place where both options sit side by side.
FAQ: make or buy in a machine shop
What is a make-or-buy decision in machining? The choice between doing an operation in-house and sending it to a subcontractor. It is decided per operation and per job, by comparing the full in-house cost (setup, cycle time and the opportunity cost of a busy machine) with the full outsourcing cost (price, minimum order, transport, handling, inspection and lead time).
When is outsourcing cheaper than doing it in-house? Usually on larger batches, when the subcontractor's price per piece is below your cycle cost and its minimum order, transport and handling are spread over enough pieces, or when your machine is fully booked. On small batches the minimum order, transport and handling often make outsourcing more expensive, even when the subcontractor's price per piece is lower than your cycle cost.
How do you price an outsourced operation in a quote? As its own line: the subcontractor's price or minimum charge, transport both ways, your packing, paperwork and receiving inspection time, and an uplift for the risk and the capital you tie up. State the lead time including the subcontractor.
Should the quote say which operations are outsourced? It should state the lead time and the responsibility for the parts, and it may name the process as outsourced. The price should be built so that it does not need to change if you later move the operation in-house.
Outsourced operations in QuoteBuddy
QuoteBuddy builds the estimate from the drawing: it reads the technical drawing, prices the stock at your material prices and builds each operation as its own line, with setup kept apart from cycle time, at your shop's hourly rates. A process that you have not set up as an in-house capability is treated as outsourced: it is priced at the rate you set for that process, multiplied by your outsourcing uplift, and the estimate adds an outsourcing handling line once per order. Until you confirm the outsourced step and enter the supplier's hourly rate, the estimate flags it for review and the quote is not sent to the end customer automatically. Several quantities on one estimate show where the setup stops dominating the unit price.
You can watch the QuoteBuddy demo video, from technical drawing to quote. To try it on a drawing of your own, start a free 30-day trial.