Measuring the supply chain risk in offshoring countries using data envelopment analysis and the analytic hierarchy process

Abstract

PurposeAn indiscreet strategy of offshoring from low-cost countries (LCCs) can do more harm than good, since invisible supply chain risks may increase hidden costs and subsequently more than offset cost-saving opportunities. Considering the potential impact of these risks on offshoring, the purpose of this paper is to identify risk factors that significantly hinder the efficiency of offshoring and then measure specific risks associated with offshoring in foreign countries.Design/methodology/approachThis paper develops performance metrics for gauging the offshoring attractiveness of potential sourcing countries using data envelopment analysis and then identifies the benchmark sourcing country using the analytic hierarchy process (AHP).FindingsThis study reveals that, defying the conventional wisdom, LCCs are not necessarily the most desirable offshoring destinations. This study also discovers that LCCs tend to be less business friendly, less logistically efficient, and riskier to source than their high-income country counterparts.Originality/valueThis paper is one of the first to introduce the concept of wealth creation efficiency for an offshoring decision and consider a host of key determinants such as wealth creation efficiency, logistics efficiency, business friendliness, and various supply chain risks for selecting the most desirable offshoring destination.