An outsourcing decision model for sustaining long-term performance

Outsourcing is a strategically important activity that enables an enterprise to achieve both short and long term benefits. An important but less well researched issue concerns outsourcing in relation to the long-term performance of an enterprise. This paper addresses this issue from the point of view of the protection of core competencies during outsourcing and by considering the trade-off necessary when certain amounts of knowledge transfer/sharing is inevitable. Two major outsourcing decision variables have been identified and quantified—the significance of the component/process technology involved and the risk of disclosing this technology to suppliers. Nine scenarios are generated by considering each of the two variables at three levels of severity: high, medium and low. Each scenario is explored in terms of the appropriate outsourcing approach, the appropriate management of the core competencies/knowledge, and the selection of suppliers. The validity of the outsourcing decision model is established using four products with 861 components from four manufacturing companies based in China.     

Outsourcing in non-developed supplier markets: a lean thinking approach

The benefits organisations can gain from outsourcing include cost savings and higher levels of innovation. On the other hand, outsourcing drawbacks include potential operations and performance issues such as capability and capacity problems. Some large organisations are pursuing the practice of outsourcing, more specifically, targeting global outsourcing from developing and low-wage countries. However, the perception of expected cost saving benefits when outsourcing to low-wage countries does not always reflect reality. A number of companies have failed to achieve the expected cost savings in sourcing from low-wage countries due to operational-level capability. The objective of this study is to develop an extended evaluation method that takes into account operational-level influence factors, in addition to the procurement factors, in the context of non-developed supplier markets. Our extended evaluation method of potential suppliers addressed the paradigm of ‘standard industry recipes’, by encompassing operational-level influence factors and integrating supplier value stream analysis into the evaluation and selection process of outsourcing. A survey was distributed to 369 international manufacturers. Operational levels were categorised into seven latent constructs: Customer Service/Sales, Purchasing, Production Planning and Control, Manufacturing Engineering, Shop Floor and Quality Control, Receiving and Shipping. Structural Equation Modelling (SEM) confirmed the seven constructs, but measuring items were reduced from 39 to 23 significant observed measuring items, compromising the supplier selection framework. Our proposed framework will help practitioners make better informed decisions in outsourcing from non-developed supplier markets.     

Strategic capacity management: Meeting technological demands and performance criteria

Although manufacturing contributes a large part to the current performance of companies, few companies deal systematically with issues related to strategic capacity management. As well as decisions on outsourcing and acquisition of resources, this involves triggering process innovation, process development and improving performance by adapting organizational structures. Action Research in companies reveals the importance of capacity management at a strategic level as well as the implementation at tactical and operational levels. The methods of Strategic Capacity Management, as proposed in this paper, provide an industrial company with tools for implementing its manufacturing strategy. Only the design of organizational structures has received attention in the past--little research has been done in the area of manufacturing technology and integral models for sourcing. Through matching product configurations with product-market strategies and product development, the methods point to areas of improvement. The new methods include decision-models for outsourcing and capacity management, product development, and a manufacturing technology scan. All the methods deploy performance evaluations as a base for selecting alternatives to define improvements. These improvements lead to decisions on investments for resources, resource utilization and development of processes, including initiation of manufacturing technologies, as demonstrated by four case studies.     

Supplier selection for outsourcing from the perspective of protecting crucial product knowledge

This paper considers the supplier selection problem in terms of the characteristics of the products/processes to be outsourced. Emphasis is placed on the possible risk that may arise in sharing or transferring crucial product/process knowledge to suppliers during outsourcing. Two indices are employed to assess the suitability of a supplier for outsourcing a product/process. The first measures the supplier's capability for technological innovation in the products for which they offer outsourcing services, and includes investment in R&D projects and the ratio of R&D personnel to the total work force. The second index measures the supplier's practices in protecting its clients’ intellectual property rights, and includes corporate image, track record in protecting clients’ intellectual property rights, and compliance with internal and external requirements. These two indices are then used to classify suppliers into four major groups, which are in turn assigned to classes of components/processes depending on their strategic importance and vulnerability – a portfolio approach. The proposed portfolio approach has been validated via a substantial empirical study involving data for 401 parts, 216 suppliers, and 36 manufacturing companies operating in China.     

Foreign Subsidiaries and Technology Sourcing in Spain

Firms acquire external technological knowledge via different channels. In this paper, we compare the technology sourcing of foreign subsidiaries and domestic firms looking at domestic R&D outsourcing, international R&D outsourcing, domestic cooperation for innovation and international cooperation for innovation. We use data from the Spanish Technological Innovation Panel for the years 2005–2009 for 10,206 innovative firms operating in Spain. We apply a multivariate probit specification which allows for systematic correlations among the different choices. The results show that the different technology sourcing choices are interdependent and that foreign subsidiaries show a different pattern of external technology sourcing. Compared to affiliated domestic companies, foreign subsidiaries show a smaller propensity for external technology sourcing via R&D outsourcing from independent firms in the host country, for international R&D outsourcing and for international cooperation for innovation. In contrast, foreign subsidiaries show a greater propensity for domestic cooperation for innovation. However, foreign subsidiaries are not a homogenous group in this respect.     

The use and effectiveness of modern manufacturingpractices: A survey of UK industry

In this paper we describe a survey of the current use and effectiveness of key modern manufacturing practices within the UK. The findings from the survey are based upon a ten-percent sample of British manufacturing companies employing more than 150 people. The most common practices in use are supply-chain partnering, total quality management, team-based working and integrated computerbased technology. By contrast, the least used practices in Britain are total productive maintenance, outsourcing, concurrent engineering and manufacturing cells. In terms of effectiveness, in more than half of the companies the practices are perceived to be failing to meet their objectives in terms of quality, cost or responsiveness to customers. It was found that practices such as learning culture, integrated computer-based technology and empowerment are expected to be used more in the future, whereas outsourcing, manufacturing cells and concurrent engineering are predicted to experience less growth. These findings are discussed within the paper in terms of their consistency with previous studies, as well as their implications for the current and future use of individual practices.     

Outsourcing practices in automotive supply networks: an exploratory study of full service vehicle suppliers

Most automotive companies outsource the design, manufacturing and assembly of some complete cars to independent suppliers or full service vehicle companies (FSVs). FSVs represent a relatively unexplored form of outsourcing which combines joint efforts in developing a modular product with the externalisation of specific niche manufacturing processes. On the basis of comparative cases and of qualitative information collected within three FSVs and three OEMs, this study aims to investigate the associated advantages and risks for FSVs, commonalities/differences from the practices of outsourcing to component/module specialists that can be found in other industries and why and for what kind of products FSVs can be appropriate in automotive supply networks. The study contributes to the debate on outsourcing in the automotive industry by providing an original interpretation on why FSVs have recently seen a shakeout with some growing whilst others have faltered.     

Corporate entrepreneurship,operations core competency and innovation in emerging economies

This study used a blended view of corporate entrepreneurship and operations core capability as enablers of innovation. Survey data collected from automotive OEM suppliers in five emerging countries in South-east Asia are used to examine the relationships among corporate entrepreneurship, operations core competency and innovation. We measured corporate entrepreneurship by its corporate culture and leadership, whereas operations core competency was operationalised by a firm’s knowledge management, technology management and process management. Finally, innovation is measured by process innovation and product innovation. Our analyses show that in the context of Asia, corporate entrepreneurship affects a firm’s operations core competency, which in turn affects innovation. Our findings provide valuable insights about the enablers of a firm’s operations core competency and innovation.     

Building technological capability for industrialization: analytical frameworks and Korea's experience

This paper first presents five analytical frameworks-technologytrajectory, absorptive capacity, technology transfer, crisisconstruction and dynamic learning process-that may be used toexamine the process of technological learning at the firm level.These frameworks are interrelated to develop an integrativemodel. The Korean experience is then discussed as a case inpoint to illustrate how the frameworks can be used to analyzethe process of building technological capability for industrialization.The paper also discusses many implications for public policyand corporate management in other countries.     

Supply chain flexibility concepts,dimensions and outcomes: an organisational capability perspective

Due to the increasing uncertainty and diversity in supply chains (SCs), companies are aiming to develop their SC flexibility, which we define as the capability of a company, both internally and externally in conjunction with its key suppliers and customers, to respond to uncertainties and customer expectations without excessive costs, time and performance losses. SC flexibility has three dimensions – internal, supplier and customer flexibility. This study investigates how SC flexibility improves operational and financial performance from the organisational capability perspective. The conceptual model is empirically tested using data collected from 216 companies in China. Our findings suggest that only customer and internal flexibility contribute to operational performance directly, while supplier flexibility contributes to operational performance only indirectly through internal flexibility. The three dimensions of SC flexibility have no direct impacts on financial performance. We further identify complementarities between supplier and customer flexibility and tradeoffs between supplier and internal flexibility. However, no synergy effect is found for internal and customer flexibility on operational performance. This study provides a framework to understand SC flexibility from the organisational capability perspective and identifies the inter-relationships among the three dimensions of SC flexibility and operational and financial performance.     

Eco-efficiency reporting exemplified by case studies

This paper presents current and future trends and requirements for environmental, eco-efficiency and sustainability reporting. Further it defines the concept of eco-efficiency, and describes ways of developing eco-efficiency indicators for production sites and for product chains. Eco-efficiency measures give indications both on economic and on environmental performance. These indicators are then exemplified by results from case studies within Norwegian and European industrial companies. Some of these projects have also laid the foundation for environmental accounting and reporting systems in local communities. Eco-efficiency as a tool for measuring the performance along product value chains is demonstrated in the paper. Product oriented eco-efficiency indicators are seen in the context of the international efforts on standardisation of environmental product declarations (EPDs), which are ways to report the environmental performance of products. This is exemplified with cases from furniture production value chains. The presentation focuses further on the concept of corporate social responsibility and on the challenges of how to incorporate this in future sustainability reporting.     

Development of technology and service thinking for technical personnel: Action research at a Japanese monitor maker

The importance of services within technology-based business in terms of customer value is increasingly well-understood by manufacturing companies. Manufacturing companies are trying to restructure their business models by adding the concept of service that is required to make a process of value co-creation with customers. Human resources are a core factor in the implementation of this notion in the practical field. In a technology-based business, technical personnel must have not only technology-oriented thinking but also service-oriented thinking in order to generate new value propositions. In this work, we propose an approach to transform the way of thinking and support knowledge co-creation with others with a focus on new corporate value propositions. We combined a service innovation chart with a business model thinking methodology to create a new approach intended for the development of technology and service thinking within technical personnel. Our objective is to help manufacturing companies create a service climate and clarify the knowledge co-creation process. We conducted action research by introducing our approach to 25 technical personnel employed by a Japanese monitor maker and obtained data including feedback on its usability and the impact on corporate business models. The findings of this study will help personnel to generate technology and service-based innovation concepts, thereby promoting servitization in technology-based companies.     

Models for measuring and predicting shareholder value: A study of third party software service providers

In this study, we use the strategic profit model (SPM) and the economic value-added (EVA to measure shareholder value). SPM measures the return on net worth (RONW) which is defined as the return on assets (ROA) multiplied by the financial leverage. EVA is defined as the firm's net operating profit after taxes (NOPAT) minus the capital charge. Both, RONW and EVA provide an indication of how much shareholder value a firm creates for its shareholders, year on year. With the increasing focus on creation of shareholder value and core competencies, many companies are outsourcing their information technology (IT) related activities to third party software companies. Indian software companies have become leaders in providing these services. Companies from several other countries are also competing for the top slot. We use the SPM and EVA models to analyse the four listed players of the software industry using the publicly available published data. We compare the financial data obtained from the models, and use peer average data to provide customized recommendations for each company to improve their shareholder value. Assuming that the companies follow these rules, we also predict future RONW and EVA for the companies for the financial year 2005. Finally, we make several recommendations to software providers for effectively competing in the global arena.     

A public research institute that created and led a large industrial group in Japan

The importance of domestic technology transfer from the public sector (universities and public research institutes) to industry is increasing in the era of science–driven innovation. One of the purposes of a triple helix of evolving university-government–industry relations is how to make use of universities and public research institutes for industrial development. This paper first discusses the means of domestic technology transfer and points out that spinning off companies is one ultimate way to transfer technology, after discussing the relation between a triple helix and technology transfer. Then, this paper presents a unique case of a public research institute before the end of World War II in Japan. This research institute established 63 companies, such as Ricoh and Okamoto. At the same time the institute excelled in science as well. The first two Nobel Prize Laureates of Japan were researchers of this research institute. The paper discusses the management of this institute and its group companies and enabling environment surrounding the institute and its group companies at that time. At the end, the paper draws some lessons for public research institutes and their spin-off companies today.     

Coordinating strategic outsourcing decisions for semiconductor assembly using a bi-objective genetic algorithm

Increasing global competition has forced high-tech companies to focus on their core competences and outsource other activities to maintain their competitive advantages in the supply chains. While most companies rely on domain experts to coordinate strategic outsourcing decisions among a number of qualified vendors with different capabilities, the present problem can be formulated into a complex nonlinear, multi-dimensional, multi-objective combinatorial optimisation problem. Focused on real settings, this study aims to fill the gap via developing a bi-objective genetic algorithm (boGA) for determining the outsourcing order allocation with nonlinear cost structure, while minimising both the total alignment gap and the total allocation cost. The proposed boGA incorporates specific random key representation to facilitate encoding and decoding. This study also develops a bi-objective Pareto solution generation algorithm to enable efficient searching of Pareto solutions in multiple ranks and designs a composite Pareto ranking selection with uniform sum rank weighting for effective selection. To estimate its validity, the proposed boGA was validated with realistic cases from a leading semiconductor company in Hsinchu Science Park in Taiwan. The optimal boGA parameters were tested using a set of experiments. Scenario analyses were conducted to evaluate the performance of the proposed algorithm under different demand conditions using the metrics in the literature. The results have shown the practical viability of the proposed algorithm to solve the present problem of monthly outsourcing decisions for the case company in practicable computation time. This algorithm can determine the near-optimal Pareto front for decision makers to further incorporate with their preferences. This study concludes with discussion of future research directions.     

Interactions between organizational culture,capability, and performance in the technological aspect of society: Empirical research into the Japanese service industry

It has been designated that humans have lost the balance between nature and society, and firms are expected to proactively contribute to a circular economy that minimizes harm to the world. To respond to these issues, this paper investigates the way of balancing environmental protection with corporate profits based on the Porter hypothesis, which is a well-known view on management practice. The hypothesis has been tested in many recent empirical studies, being supported until now; however, studies hardly used the organization theory approach effectively and they are restricted as the technological aspect of society was not treated. Therefore, we incorporate the co-evolutionary dual couplings model and clarify the interaction between the organizational and societal levels. Regarding the former, this study examines the interactions among four variables: environmental protection culture (containing technology), organizational capability, environmental performance, and economic performance, by multivariate analysis with the data of 498 Japanese firms. Regarding the latter, the study proposes a technological shift by employing the concept of the planned obsolescence-driven circular economy.     

Production scheduling with outsourcing scenarios: a mixed integer programming and efficient solution procedure

When market demand exceeds the company's capacity to manufacture, outsourcing is commonly considered as an effective alternative option. In traditional scheduling problems, processing of received orders is just possible via in-house resources, while in practice, outsourcing is frequently found in various manufacturing industries, especially in electronics, motor and printing companies. This paper deals with the scheduling problem, minimising the cost of outsourcing and a scheduling measure represented by weighted mean flow time, in which outsourcing of manufacturing operations is allowed through subcontracts. Each order can be either scheduled for in-house production or outsourced to an outside supplier in order to meet customer due dates. In this problem, not only should the sequence of orders be determined, but also decision on picking the jobs for outsourcing, selecting the appropriate subcontractor, and scheduling of the outsourced orders are considered as new variables. To formulate the given problem, four different outsourcing scenarios are derived and mixed integer programming models are developed for each one separately. Furthermore, to solve the suggested problem, a computationally effective team process algorithm is devised and then a constraint handling technique is embedded into the main algorithm in order to ensure satisfaction of customer due dates. Numerical results show that the suggested approach possesses high global solution rates as well as fast convergence.     

Additive layered manufacturing: sectors of industrial application shown through case studies

In modern industry, mass production has migrated to third world countries. To be competitive, European companies are forced to rapidly switch towards manufacturing of short series of customised products with added value. In European industry, a great effort has been made in order to customise products and give them an added value by developing new fabrication technologies. Additive layered manufacturing (ALM), also known as rapid manufacturing (RM), is a powerful tool that offers the necessary competitiveness to European companies. ALM comprises the use of layer-by-layer manufacturing in order to build a part by addition of material. Fabrication is performed directly from the 3D CAD model, which is sliced into layers that are printed one upon the other. Also known as free form fabrication, additive fabrication ‘unlocks’ design potential since part design obeys functionality, pushing the limits of manufacturability. In this paper, the authors review ALM technologies and the state-of-the-art of ALM applications in tooling, biomedicine and lightweight structures for the automotive and aerospace sectors. The authors present their experience in industrial application of additive fabrication through various industrial technology transfer projects made to transfer ALM technology to SMEs. Various case studies are presented and the achieved benefits of ALM are shown.     

Project Execution Capability, Organizational Know-how and Conglomerate Corporate Growth in Late Industrialization

In many successful late-industrializing countries in the 20thcentury, business groups with operating units in technologicallyunrelated industries have acted as the microeco-nomic agentof growth. This paper explores why this business form has characterizedcountries which industrialized ‘late’, and why thisform succeeded in the early phases of catching up whereas theadvanced-country conglomerate has had an undistinguished performance.The paper uses internal resource-base theories of the firm toexplore the significance of organizational knowledge and resultingincreasing returns in the group form which, even in mature marketsand especially in late industrialization, constitute a sustainablesource of competitiveness. In the case of late industrializationforeign technology acquisition capability became a necessarycondition for corporate success. In the best diversified businessgroups this capability was transformed into organizational knowhow that provided a key resource in the effectiveness of corporategrowth through diversification. The first two parts of the paperbriefly survey diversified industrial groups in historical contextsand then across a broad array of late-industrializing countries.Then the paper considers why diversification was not prevalentamong firms attempting to catch up in earlier historical periods,why the strategy of leading late industrializing firms was oneof diversification rather than specialization and why theirchosen diversification path was one involving technologist collyunrelated industries. This is followed by the core argumentof the paper about the transformation of technology acquisitioninto a competitive asset and illustrated with evidence fromSouth Korea. Finally, the paper analyzes why the behavior ofthe late industrializing group differs from that of the Americanconglomerate.     

Supplier development at Honda, Nissan and Toyota: comparative case studies of organizational capability enhancement

What factors facilitate and constrain the sustained developmentand replication of organizational capabilities of suppliers?This question is addressed in a comparison of historical casestudies of Toyota, Nissan and Honda in Japan. First, as expected,replication difficulty is overcome by enabling companies toshare the practice, rather than the representation, of tacitknowledge. Second, interdependence in the hierarchy of routinesthat constitute organizational capabilities has led companiesto broaden the scope of supplier development over time. Third,this broadening challenges suppliers to accept customer companies'intervention in internal investment decisions, requiring a certainmode of corporate governance. It is argued that the boundaryof a capability-based firm may go beyond legally distinct unitsof financial control when firms are subjected to a cumulativeprocess of capability enhancement.