Outsourcing Manufacturing Research Articles

Impact of strategic decision making for outsourcing on managing manufacturing

PurposeThe theories of transaction‐cost economics, the resource‐based view and the core competencies approach have been used extensively to justify the rationale behind strategic decisions on outsourcing, but their validity has not been investigated yet in comparative empirical research. Additionally, no study has examined the operational effects of these decisions in‐depth. The purpose of this paper is to fill these two gaps in the academic literature.Design/methodology/approachA literature review confirms the existence of these gaps and informs hypotheses based on the three theories. Additionally, the model for continuous decision making on outsourcing is used to systematically collect data from five cases studies. The cases – all make‐to‐order or engineering‐to‐order – have been analysed on effects for operational performance and control resulting from strategic decision making on outsourcing.FindingsFrom this evaluation, it appears that these companies perform weakly on the control of the outsourced activities. Furthermore, it seems that the (manufacturing) strategy is disconnected from outsourcing practices and that outsourcing hardly contributes to competitive advantage. Moreover, from some of the case studies it appears that the decision for strategic outsourcing is irreversible. Finally, traditional criteria and behaviour during decision making prevail, i.e. a cost‐driven perspective, which does not address contemporary challenges.Research limitations/implicationsDespite being explorative and based on only five cases, these findings indicate that strategic decision making on outsourcing based on the three theories insufficiently accounts for operational issues that emerge later during manufacturing; it might be necessary to revise the theoretical base for outsourcing to include management of outsourced manufacturing activities.Practical implicationsThe findings imply also that managers in companies, in any case those firms that operate on the basis of make‐to‐order or engineering‐to‐order, should be less “rushed” into strategic decision making on outsourcing that has adverse effects. Rather, outsourcing requires integral decision making in contrast to factual decision making that displayed signs of bounded rationality (particularly expressed through the focus on cost savings).Social implicationsThe dominant, one‐sided view of the cost perspectives contributes to the notion that the shareholders' interests for short‐term profitability conflict with long‐term organisational health (apparent through the impact on operational management of outsourcing activities).Originality/valueStakeholders involved in strategic decision making might use this research to evaluate fundamentally decisions that cover outsourcing. At the same time, for consultants and practitioners it offers insight that is complementary to the often one‐sided strategic decision making with its focus on cost reductions. Furthermore, this paper demonstrates the limited validity of current theories that underpin strategic decision making on outsourcing and provides an impetus for academics to develop more appropriate theory.

The Effect of Learning and Integration Investment on Manufacturing Outsourcing Decisions: A Game Theoretic Approach

We introduce a two-period Stackelberg game of a supplier and buyer. We recognize that learning based on manufacturing experience has many advantages. Consistent with much of the literature, we assume both the buyer and supplier realize reductions in their respective production costs in period 2 due to volume-based learning from period 1 production. Additionally, we introduce another learning concept, the future value, to capture the benefits of transferring current manufacturing experience for the design and development of future products and technologies. In contrast to the literature, we allow the supplier two mechanisms to impact the buyer’s outsourcing decision: price and the investment in integration process improvement that reduces the buyer’s unit cost of integration. Integration process improvement may include the investment in new materials, specialized technology, or the re-design of the integration process. Conditions are given whereby the buyer partially outsources component demand as opposed to fully outsourcing or fully producing in-house. We explore when the supplier’s price and investment in integration technology are substitute strategies versus complements. We analyze the effect on the buyer and supplier’s decisions due to: the buyer’s base integration cost, the supplier’s cost of integration process improvement, the rates of learning for both the buyer and supplier, and dynamic demand.

Strategic Research to Build the Competitive Advantage of Software and Service Outsourcing Manufacturing Industry in ChongQing

The prosperous development of the software and information service outsourcing industry brings opportunities for inland city to optimize manufacturing industrial structure and change economic growth pattern. This paper takes Chongqing, which locates in open frontier and is national service outsourcing demonstration city as an example. Based on international service outsourcing market development trend research, this paper analyzes that Chongqing develops service outsourcing manufacturing industry advantages and restricted factors. From industrial foundation, technology import and innovation, financing channels, the information public service platform, talents construction, development environment aspects, software and information service outsourcing industry development path was initially discusses.

Fatal workplace accidents in outsourced operations in the manufacturing industry

Several studies have indicated that outsourcing increases the risk of accidents and presented some explanations for this phenomenon. For example, higher accident proneness of external employees has been presented, but the common causes of accidents have not been reviewed in depth. This paper provides information about typical accidents, the contributing factors, and preventive measures of fatal occupational accidents that occurred in outsourced manufacturing tasks. This paper also compares whether these factors differ from accidents that occurred when tasks were performed in-house in the manufacturing industry. The focus is on operations executed in the factory area for or by an organization operating in the manufacturing business. The accident analysis is based on information gathered from accident reports for fatal workplace accidents that occurred in Finland during 1999–2008. At outsourced operations in manufacturing, accidents occur most commonly when installations or work preparations are being performed. According to the reports, dangerous work practices and insufficient hazard identification most frequently contributed to accidents. In order to prevent typical accidents, e.g., occupational instructional and guidance, hazard identification, work practices, supervision, and task planning should be improved. Statistical differences between outsourced and in-house operations were also found, mainly within the contributing factors. Therefore, the safety of outsourced manufacturing operations should be considered in detail in order to prevent accidents and ensure occupational safety also when operated with other performers.

A Process-Collaboration Oriented Outsourcing Manufacturing Execution Framework Based on Multi-Agent System

In competitive and uncertain global business environment, manufacturing enterprises must frequently expand manufacturing capacity to respond effectively and quickly to satisfy customer needs. Outsourcing manufacturing through subcontract is an effective approach for this purpose. This paper presents a process collaboration oriented outsourcing manufacturing execution framework, which integrates the functions of manufacturing execution system (MES)inside enterprise and collaborative manufacturing system across enterprises. With the collaborative working environment based on multi agent system, the framework can support enterprises to establish optimum production schedule with due date constraint, construct virtual enterprise by outsourcing tasks to partner enterprises, and utilize internal and external resources to conduct manufacturing activities with the coordination of workflow system, so as to expand the production capacity and reduce the time to market. A prototype system is implemented and demonstrated with a case study. Introduction

Whose customers are they?

PurposeMany product organizations recognize the benefits of outsourcing manufacturing of key components or even entire product lines to China and other low labor cost countries. But while the cost savings are obvious, many product companies fail to grasp the parallel risk of their own distributors or retailers by‐passing them to source products directly from offshore suppliers. The author discusses case examples of companies that do a good job of anticipating and addressing this threat through a range of approaches to building strong connections to end customers. The author proposes six key strategies for companies in this situation.Design/methodology/approachIn this article, Jackson cites a number of case examples of businesses that have built strong connections to end customers even though they typically reach these through distributors or retailers. Examples industries included in the article are durable consumer goods and medical products. The author then draws lessons that can be applied broadly by any company concerned about the risks of distributors or retailers sourcing private label product directly from off‐shore suppliers.FindingsThe author proposes six priorities for defending against disintermediation by distributors and offshore suppliers: acknowledge the urgency of the threat; reinforce brands; find new ways to link to customers; look for mass‐customization opportunities; enter into creative partnerships; be serious about services.Originality/valueThis article sheds light on the risk of disintermediation for product companies using offshore suppliers, and strategies that can be used to mitigate this.

Network agility as a trigger for enhancing firm performance: A case study of a high-tech firm implementing the mixed channel strategy

Original equipment manufacturers (OEMs) can reduce labor costs, free up capital investment and enhance firm's agility by full outsourcing of product manufacturing. OEMs can then focus on the most valuable processes, e.g. R&D and marketing. However, contract manufacturers (CMs) may decide to foster their own brand and forge their own relationships with retailers or distribution channels. The conflicts of interest between OEMs and CMs can be reduced by implementing a mixed channel strategy. Label licensing, the most essential component in the implementation, enhances the marketing capability of a CM and allows it to move up the value chain. In this research, a case study involving a supply chain network in the optical storage media industry is used to develop a conceptual model to explain how a mixed channel strategy and superior network agility enhance firm performance. This study argues that information system integration influences firm performance through network agility, and that the mixed channel strategy boosts financial performance. Moreover, the result proposes that network agility is associated with a moderating effect on the relationship between the mixed channel strategy and financial performance.

Public–private partnership in labor standards governance: Better factories Cambodia

AbstractThe growth of outsourcing in apparel manufacturing has raised concerns about increasingly exploitative working conditions. Given the failure of existing enforcement mechanisms, we need to look to alternate institutional structures to address the global challenge of declining labor standards. This paper examines the case of Better Factories Cambodia (BFC), a public–private partnership (PPP) that has effectively protected workers' rights through collaboration between the Government of Cambodia, the International Labour Organization, and multi‐national apparel firms. Prior to the BFC, none of these actors was able to independently draw up and enforce stronger standards through effective monitoring. In collaboration, however, this mix of private, state, and inter‐governmental organizations have been able to achieve the twin goals of stronger labor protections and effective enforcement by building on each partner's distinct organizational strengths. While this case may have broader relevance, its successes are tempered by dependence on a single industry and on buyers' preferences for inspected production sites. Further, similar partnerships may not emerge without strong state intervention to demonstrate their positive outcomes. Copyright © 2011 John Wiley & Sons, Ltd.

How 'Little' Outsourcing Create Large Skill Premium: A Model of North-to-South Manufacturing Outsourcing

This paper develops a general equilibrium model that shows a small volume of North-South trade (i.e. 2% of Northern GDP) can cause the observed rise in skill premium, thus resolving the “small trade volume paradox” in the skill premium debate. We do this by applying the concept of “trade in tasks” of Grossman and Rossi-Hansberg (2008) to analyze the nature of North-to-South manufacturing outsourcing. As a conceptual innovation, we carefully distinguish two different implicit assumptions of the HO model: factor immobility vs. “task inseparability”. We show that outsourcing, as a form of trade in tasks, essentially attains “task separability” while apparently retaining factor immobility, thus making the traditional HO framework obsolete for analyzing current North-South trade. We argue that this change in the nature of trade calls for new thinking in economics and public policy making.

Research on Supplier Collaborative Product Development Mechanism under Condition of Manufacturing Outsourcing

The pressure of financial turmoil and global competition drive domestic manufacturers to seek additional profit space besides low-cost labor and raw materials so that they could gain more competitive strength than the other companies in the world. The article maintains that in the manufacturing outsourcing environment domestic manufacturers could effectively reduce cost, shorten R&D cycle time and improve product quality in the manner of collaborative product development with outsourcing suppliers. With supply chain management and synergy theory, the article makes analysis of the definition for supplier collaboration, and then summarizes main activities of collaborative product development including specification, concept design, detail design and product design. Meanwhile, collaborative product development shall satisfy 6 key preconditions. Based on this, the article brings forwards the mechanism of collaborative product development, which is concerned with 5 phased key activities and collaborative manner from customer requirement to initial operational testing. Eventually, predict that collaborative mechanism need to be further analyzed under industry background From the beginning of the 21st century, the variation of macroscopic and microscopic environment that the global industrial field has faced was far fiercer and much more difficult to forecast than ever before. Now mass manufacture can only be accomplished by close cooperate with outsourcing partners, because of the new globalized manufacture network is becoming more and more digitized, decentralized, virtualized, intellectualized and agile. In last few decades, Chinese production has won innumerable outsourcing orders by the advantage in low cost and flexibility, which built a solid foundation of the trade surplus of China. However, in the past two years, because of the financial crisis, RMB appreciation, prices of raw material shy rocketed, and the rigorous quality and service requirement which customers always asked, the profit margin of Chinese manufacturing businesses become much smaller than ever. If these manufacturing companies keep going as before, the existing advantage they have would be soon eroded. Therefore, from ideality of supply collaborative, if these outsourcing companies can build a close relationship actively with their supplies who could significantly affect the total cost of these outsourcing companies, by using the advantages and experience these supplies have, they can design products cooperatively, save cost from the beginning, shot the development stage, and create a significant positive impact on the price and quality of the end products of these outsourcing companies

The Outsourcing of Manufacturing and the Rise of Giant Global Contractors: A Marxian Approach to Some Recent Transformations of Global Value Chains

This article aims to show that the Marxian ‘law of value’ can provide solid foundations for the comprehension of the constitution and dynamics of Global Value Chains (GVC). It offers an explanation of the social processes of ‘value creation and capture’ within a chain based on the system-wide motion of global capital accumulation. A firm connection is thus established between the particular dynamics internal to each industry and the general dynamics of the ‘system as a whole’, which is, precisely, where the greatest weakness of the GVC approach lies. Furthermore, the usefulness of those general theoretical insights is then shown through a more empirical discussion of recent transformations in the composition and governance structure of GVC resulting from two interrelated processes: the tendency for a growing de-linking between innovation and manufacturing and the rise of highly concentrated global contractors. These phenomena have paradigmatically developed in the electronics industry, giving rise to the formation of the so-called modular or turnkey production networks. The discussion therefore focuses on that particular industrial sector.

Utilising the potential of combining local and global supply chains

Outsourcing of manufacturing leaves two options for the structuring of the supply network: either complete outsourcing of an item or process, or combining external sourcing and in-house manufacturing. The objective of this paper is to explain the effect on performance of various strategies of combining in-house manufacturing and outsourced manufacturing. The analysis is based on a case study of a European manufacturer (EM) that has outsourced part of its casting processes to Chinese suppliers. The strategies were tested by means of a simulation study and compared in terms of their effects on inventory performance. The study showed at significance level p<0.01 that inventory levels in China decreased 23% and inventory levels in Europe decreased 6% with a so-called base-surge strategy, sourcing predictable and stable demand in China and uncertain demand in-house in Europe.

Cross border industries in Mexico with low organizational attachment. Case study

LA INDUSTRIA MAQUILADORA DE LA FRONTERA DEL NORTE DE MÉXICO ESTÁ ENFRENTANDO ACTUALMENTE EL PROBLEMA DEL BAJO COMPROMISO ORGANIZACIONAL ENTRE SUS TRABAJADORES DE PRODUCCIÓN. LOS EMPLEADOS DIRECTOS A MENUDO PERCIBEN MUY POCO COMPROMISO HACIA SU ORGANIZACIÓN Y LAS TASAS DE ROTACIÓN EN LAS PLANTAS FLUCTÚAN EN UN PROMEDIO DE 10% MENSUAL EN TIJUANA. OTRAS CIUDADES COMO ENSENADA (A UNA HORA DE TIJUANA) EXPERIMENTAN TASAS MENORES A 10%, PERO AUN MÁS ALTAS DE LO DESEABLE. EN ESTE ESTUDIO, SE EXAMINA UN MODELO DE ROTACIÓN DE PERSONAL Y SATISFACCIÓN EN EL EMPLEO. LAS VARIABLES QUE SE UTILIZAN SON LAS DE LOS COMPAÑEROS DE TRABAJO, SEGURIDAD EN EL EMPLEO Y EL CONTENIDO DE TRABAJO. LAS VARIABLES DEMUESTRAN UNA RELACIÓN INDEPENDIENTE ALTA. UN ANÁLISIS REALIZADO EN EL PROGRAMA SPSS A CIEN TRABAJADORES DE PRODUCCIÓN DE UNA EMPRESA MAQUILADORA DEMUESTRA QUE EL DESEO CONTINUO DE BUSCAR TRABAJO ESTÁ POSITIVAMENTE ASOCIADO CON LAS INTENCIONES DE ROTAR Y NEGATIVAMENTE ASOCIADO CON EL COMPROMISO ORGANIZACIONAL QUE PERCIBEN. ESTE HALLAZGO PUEDE SERVIR DE GUÍA A LOS GERENTES Y ACADÉMICOS QUE INTENTAN ENTENDER Y COMBATIR LA ROTACIÓN Y REFORZAR EL COMPROMISO ORGANIZACIONAL EN EL NORTE DE MÉXICO.

Impacts of internal and interorganizational information systems on the outsourcing of manufacturing

Drawing on transaction cost economics, this paper looks at the relationship of IT use to the outsourcing of manufacturing using survey data from US manufacturers. We find that greater use of interorganizational systems (IOS) is associated with greater outsourcing, but we do not find any main effects between internal IT and outsourcing. A negative interaction effect is found between measures of internal IT and IOS, suggesting that the two may be substitutes rather than complements. This distinction between internal IT and IOS, and the relationship of the two, offers scholars a more nuanced understanding of the nature and impacts of IT. It provides managers insight into how different types of IT can support different sourcing options.

An integrated fuzzy approach for the selection of outsourcing manufacturing partners in pharmaceutical R&D

The selection of the outsourcing manufacturing partners (OMPs) is an important issue for research and development (R&D) in the pharmaceutical industry. The selection process considers several main criteria, as well as a few sub-criteria for each main criterion. Such problems can be formulated as hierarchical structures and can usually be resolved with multi-criteria decision-making approaches. This paper presents an integrated fuzzy approach for selecting a suitable OMP in pharmaceutical R&D. In the integrated approach, fuzzy concepts are used for decision-makers’ subjective judgments to reflect the vague nature of the selection process. Fuzzy AHP and fuzzy TOPSIS are included in the integrated approach. Fuzzy AHP is used to determine the fuzzy weights of criteria and sub-criteria because it can effectively determine various criteria's weights in a hierarchical structure. Fuzzy TOPSIS aims to find the OMP with the best performance with respect to the sub-criteria. We exemplify the integrated approach using a numerical application to demonstrate its feasibility.

A novel hybrid MCDM approach for outsourcing vendor selection: A case study for a semiconductor company in Taiwan

Outsourcing manufacturing is a trend in today’s global business operations. Vendor selection is an essential factor affecting outsourcing operations performance and has been determined as a multiple criteria decision making (MCDM) problem. The purpose of this paper is to propose a novel hybrid MCDM technique to cope with the complex and interactive vendor evaluation and selection problem which can determine the structural relationships and the interrelationships amongst all the evaluation’s dimensions and support the Analytic Network Process (ANP) method to arrange appropriate weightings to each dimension and criterion in the evaluation model by summarizing the opinions of the experts. Finally, the overall performance ranking of all alternatives can be obtained to assist the decision making. Taiwan semiconductor industry is the largest provider in worldwide market. It is vertically disintegrated and outsourcing is a main stream practice. Wafer-testing is a critical manufacturing step in the semiconductor supply chain that distinguishes whether the IC can meet the specifications. Consequently, it’s crucial to establish a thorough model for selecting the wafer-testing vendors in order to achieve the success of the outsourcing operation. A case study of a Taiwan semiconductor company in selecting its wafer-testing outsourcing vendor by using the proposed MCDM technique is demonstrated to enhance the decision making quality. The results and proposed solution can be referred to by not only the semiconductor companies, but also other industries so that they can improve the vendor selection process in order to achieve a higher performance and satisfaction level.

The New Agenda for Minority Business Development

The New Agenda for Minority Business Development

Is the offshore outsourcing landscape for US manufacturers migrating away from China?

PurposeThe motivation for this study is triggered by the fact that lately contract manufacturers in China have to deal with a number of unprecedented cost pressures such as currency fluctuations, the VAT rebate reduction, and minimum wage enforcement. As cost pressures in China continue to mount, this paper aims to analyze whether the US manufacturing outsourcing pendulum is swinging away from China and back to nearby Mexico, or towards emerging low‐cost countries such as Vietnam, Indonesia, South Africa, Turkey or Argentina.Design/methodology/approachAnalysis consists of comparing major cost drivers such as labor, currency, freight, and raw material and determined per unit price and the potential impact of currency fluctuations over the next five years. An example of Easle Pads (paper‐based non‐adhesive coated) is used to present the detailed analysis.FindingsThe outsourcing landscape today may change again in the near future as the VAT rebate is further reduced or eliminated or the impact of the Olympic Games finish. Assumptions will need to be updated to reflect any changes in the future. Though other countries such as Vietnam appear to be viable options, managers will need to take other factors into consideration when making outsourcing decisions. They will need to identify specific suppliers in a country and obtain quotes in order to finalize their decision.Research limitationsThe data analysis is supposedly very high‐level. Many assumptions were applied lacking full detail, and duties and customs were not specifically addressed for each country. However, this organized approach is useful as a strategic decision tool in performing supplier searches to identify potential countries.Practical implicationsThe paper helps shed light on the opportunities that exist in the emerging low‐cost countries such as Vietnam and Indonesia. Other countries, such as Turkey and Argentina, also offer low labor costs, but may be better considered as regional sources of supply, rather than US outsourcing destinations.Originality/valueThe majority of studies on manufacturing outsourcing in relation to China concentrate on the reasons why one should choose China. The paper looks at manufacturing outsourcing away from China and identifies possible alternatives for contract manufacturing.

Supplier selection or collaboration? Determining factors of performance improvement when outsourcing manufacturing

An empirical study was designed to determine factors of performance improvement when outsourcing manufacturing. Findings from a survey of 136 manufacturing plants in Sweden show that most of them achieve their outsourcing motives, but not without trade-offs. Factors of performance improvements such as economies of scale or operations in low-cost countries can improve one performance dimension, such as product cost, yet negatively impact volume flexibility, speed or product innovation. The results show part characteristics and supplier operating capabilities are more important than supplier relationship strategies when outsourcing manufacturing, meaning that supplier selection trumps supplier collaboration in the make-or-buy decision.

What Price a Living Wage?

This article sets out to examine ways in which a living wage might be implemented in the global apparel sector. We argue that an increase in the unit labour cost element of the free on board price paid by brands by a factor equivalent to the difference between the existing wage and a nationally determined living wage figure would not impact in any serious way upon retailer/brand-owner's (or supplier's) bottom line. However, the existence of fragmented and outsourced manufacturing, accompanied by aggressive buying practices, militates against `aspirational' code provisions in this area. Limited progress is possible only through substantial brand collaboration, an acceptance of collective bargaining through trade unions in supplier factories and, longer term, moves by brands and retailers to own and control their own manufacturing capacity.