Production outsourcing and operational performance: An empirical study using secondary data

Abstract

Firms undertake a variety of supply chain initiatives to improve their performance. Of particular interest to many practitioners and academics alike are the mixed outcomes that result from implementation of what is commonly viewed as a best practice. In this research, we consider one especially popular practice, the outsourcing of production. We investigate the effects of production outsourcing on the firm׳s overall operational performance, and its components (manufacturing cycle time, order lead-times, delivery, operating equipment effectiveness), and customer loyalty by analyzing secondary data across a wide variety of industries using data from a survey of manufacturing plant managers. We draw on resource based view of the firm along with the supply chain and quality management literature to aid in predicting the operational performance to be expected when outsourcing production. Our analysis found that production outsourcing has deleterious effects on operational performance, with significant reductions in operating equipment effectiveness and on-time delivery. Our research also found that production outsourcing has a negative influence on customer loyalty when mediated through operational performance. This research also makes methodological contributions in the development of robust measures of operational performance and related variables.