Hybrid BWM-ELECTRE-based decision framework for effective offshore outsourcing adoption: a case study

The present study seeks to develop a decision framework of enabler to help managers in offshore outsourcing adoption by focusing on the relevant enablers and their intensities. A hybrid Best Worst Method (BWM) – ELimination and Choice Expressing REality approach is used to test the applicability of developed offshore outsourcing focused enabler’s across four automotive business organisations in India and the adoption score of framework among case organisations is evaluated too. The intensity of offshore outsourcing focused enablers is analysed through BWM and the ranking of organisations and adoption index scores are computed through ELimination and Choice Expressing REality method. The developed framework possesses high adoption rate in offshore outsourcing initiatives across the case organisations. Findings of the study reveal that among the main enablers; managerial and strategic enabler holds the highest weight followed by technological enablers and organisational enablers. This study further presents the sensitivity analysis to check the robustness of developed framework by conducting experiments in different conditions. This research work will facilitate managers and professionals involved in practising offshore outscoring initiatives and results in higher cost advantages on labour and raw material, increased economies of scale, and higher sustainable business development.     

The magnitude of a product recall: offshore outsourcing vs. captive offshoring effects

The escalation in product recalls in recent years is attributed to the rise of globalisation and associated challenges of offshoring. Extant SCM research suggests that product recalls have a significant negative impact on financial performance, but gaps exist relative to the managerial actions to minimise their impact. Recall response strategies have become more important in the press, given that a single recall may result in the mandatory withdrawal of millions of products from the market, with firms incurring enormous logistics costs and brand damage. In this study, we address this gap in the research, and using a measure of product recall defined as the volume of products withdrawn from the market due to product quality failure. We explore the scale of the recall in the context of pharmaceutical sector global sourcing strategies, exploring whether the variation in global sourcing decisions not only increases the likelihood of a recall, but also influences the capability to minimise the total cost of recall. Our results suggest that offshore outsourcing and captive offshoring have opposite effects in terms of their influence on the magnitude of product recall. We summarise the implications through a compelling set of insights for future global sourcing strategy research themes.     

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.     

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.     

A closed loop outsourcing decision model for developing effective manufacturing strategy

The case study deals with aligning production capacity for a US manufacturer of industrial thermal transfer bench-top printer, by exploring various insourcing and outsourcing options based on production, cost and delivery capabilities. A modelling framework is devised which aids in selecting an effective manufacturing strategy that considers key enablers and barriers to successful outsourcing. The proposed model is closed loop, which stresses regular re-evaluation of the existing outsourcing strategy. It models the total product cost for the product currently being manufactured in the US and compares the total costs if it were manufactured offshore in countries such as, Malaysia, China, Slovakia and Mexico. The analysis from the model shows moving manufacturing of the product to Mexico results in the largest business benefit of about $400 savings per unit compared to other countries studied. A closer look at China in the future could be considered as the economic, social and security risks may change enough to warrant re-evaluation of this option. To get a clearer picture of how Mexico rates against Malaysia in the existing state, these risks may be reviewed as an extra data point to finalise the decision to move manufacturing of industrial thermal transfer bench-top printers to Mexico.     

A continuous-review model for dual intercontinental and domestic outsourcing

When making sourcing decisions, many firms consider only the direct and most visible supply-chain costs, such as unit production costs and ocean-shipping costs. Often ignored are the hidden direct and indirect costs in long supply chains, and their impact on profitability. As supply chains lengthen, supply-chain disruptions undercut the ability of manufacturers and retailers to satisfy market demands. Supply-chain disruptions add costs by forcing companies to increase inventories, to juggle production and shipping schedules, to incur excessive backordering, and to airfreight or discount the prices of goods that were not in the right place at the right time. The question is, can higher incidence of supply-chain disruptions in intercontinental supply chains justify keeping the domestic suppliers? To address the question, this paper presents a hybrid continuous-review inventory model for dual intercontinental and domestic outsourcing. The conditions for domestic outsourcing only, for intercontinental outsourcing, and for dual outsourcing were established. The problem of minimising the long-run average cost of outsourcing was investigated, and mathematical optimisation was used to illustrate the model. It is shown that if the cost of service failure outweighs the cost differential between domestic and intercontinental outsourcing, keeping domestic suppliers may be a good option.     

Contextualisation of the complexity in the selection of developing country outsourcees by developed country outsourcers

Outsourcing research has recognised that selecting the right offshore supplier (outsourcee) in low-cost distant developing countries is complex, but central to outsourcing success. More specifically, the combination of outsourcee contextual internal factors (e.g. capabilities) with outsourced-to country contextual external factors (e.g. political, legal, economic, socio-cultural) as two fundamental and interconnected decisions firms make when outsourcing remains an underexplored research gap. Therefore, through a rigorous three-tier qualitative approach we, firstly, develop a contextual Environmental Separation Index (ESI) decision tool to help outsourcing firms in making more informed decisions when selecting outsourcees and outsourcing locations. Secondly, we operationalise the ESI as intuitive and easy to use decision tool, yet with a provision to deliver a truly context proof outsourcee selection decision. Thirdly, we adopt a complexity theory lens to explain that narrowing the contextual outsourcer–outsourcee gap facilitates a mind-set shift in outsourcing relationships from hierarchies to networks and from controlling to empowering developing country outsourcees. We show from a complexity theory perspective how contextual separation gaps between developed country outsourcers and developing country outsourcees can be an effective way to grasp the evolutionary path of outsourcing relationships.     

Flexible strategies under supply disruption: the interplay between contingent sourcing and responsive pricing

Due to possible supply disruptions because of a low-cost unreliable supplier, a firm may use a high-cost reliable supplier as an additional regular supplier (dual sourcing) or an emergency backup supplier with an extra emergency cost (contingent sourcing). We consider the firm's sourcing problem when the pricing decision is made before any supply uncertainty is resolved (committed pricing) or after the supply state is realised (responsive pricing). By comparing the relative value of responsive pricing in contingent sourcing to that in dual sourcing, we study the relationship between contingent sourcing and responsive pricing in mitigating supply disruption risks. We show that the emergency cost and potential lost sales caused by disruption probability jointly impact the interplay of these two strategies. More specifically, when the emergency cost is low and the potential lost sales are lower under contingent sourcing than that under dual sourcing, contingent sourcing and responsive pricing are substitutes; otherwise, they are complements. Furthermore, we examine how disrupted capacity, i.e. the quantity that the unreliable supplier can deliver when disrupted, impacts the interplay, and find that the probability of the substitution relationship becomes higher when the disrupted capacity increases. We also find that under committed pricing, contingent sourcing is not optimal for any value of disruption probability when the emergency cost is high, a phenomenon that does not exist under responsive pricing.     

A cost-based methodology for evaluating product platform commonality sourcing decisions with two examples

As more US companies source tooling development and manufacturing overseas in countries like China and Taiwan, are the need and primary drivers for product platforms diminishing? As tooling cost is reduced to a very small percentage of the total project cost, combined with availability of inexpensive purchased components and low labour rates, the need to develop product platforms can decrease substantially. Low cost outsourcing has given firms the ability to develop and manufacture products cheaply without having to spend the additional time and effort to develop product platforms and families. In this paper, two examples involving two consumer product companies and their product lines are presented. Product family components and estimated tooling costs are analyzed, as well as development timing and profit margins to demonstrate why companies are moving away from product platforms in certain types of consumer products. A novel methodology using component commonality decisions relating to major cost drivers is introduced and applied to both examples. Based on the evidence from the examples presented in this paper, there appears to be little financial or functional benefit to develop product platforms that share common components or subsystems when these products are being manufactured offshore; however, even when considering outsourcing, platform-based product development principles can still yield tangible improvements in production costs over the life of the product.     

Trade-offs in lean vs. outsourced supply chains

Lean supply chain management is well established, effective in improving inventory control as well as leading to greater quality. Continuous improvement obtained from lean implementation is expected to lead to better learning, yielding added profitability over time. However, the growth of global supply chains lead to increased complexity and variability, which may not always favour the lean management style. Impact on total cost is often difficult to precisely estimate, in part due to high levels of uncertainty with respect to disaster and catastrophe, changing governmental regulation around the world, and in part due to increased variability from longer supply lines. We examine some of the cost impacts of lean systems vs. outsourcing policies with assumed purchasing cost advantages through simulation of a global supply chain with detailed inventory factors, and compare relative profit impact. These results are used to argue that in some circumstances strategic considerations such as lower purchasing cost can override short-term inventory savings obtained from lean systems.     

The role of political risk in service offshoring entry mode decisions

This research investigates the effect of political risk on the offshore service industry. The study empirically examines how an extended political risk definition, operationalised into a model consisting of 12 political risk variables, helps predict location decisions across offshoring entry modes and activity types. The research focuses on captive offshoring and offshore outsourcing entry modes, and Information Technology Outsourcing (ITO), Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) activity types. The research indicated that political risk factors accounted for 38% of the variability in offshore outsourcing flows, implying that concerns about service disruptions and/or cost implications of external uncertainties feature as a key factor in supplier selection and location decisions. The findings further confirm a positive relationship between institutional and regulatory factors in host locations, and the flow of offshoring activities with a high knowledge content. The research contributes to enhancing the explanatory ability of Transaction Cost Economics by re-operationalising the concept of political risk in the context of both offshore outsourcing and captive offshoring. For practitioners, these findings provide a clear indication of the political risks that can affect service offshoring decisions; for policymakers, they highlight the importance of strengthening institutional and regulatory factors to attract investment.     

What makes outsourcing effective? A transaction-cost economics analysis

This study extends the discussion of Transaction Cost Economics (TCE) and outsourcing to the selection of governance mechanisms for an effective outsourcing transaction. Specifically, our objective is to provide a better understanding as to how firms follow up on their outsourcing decisions to enhance manufacturing competitiveness through the governance mechanism, such as contract and relational adaptation (buyer-supplier cooperation). A TCE-based outsourcing model is developed to depict the relationships among key TCE variables, transaction attributes, governance mechanisms, and manufacturing competitiveness. Based on the data collected from 969 manufacturing plants in 17 countries, we found significant mediated effects from contractual clauses and relational adaptation. Firms in our sample rely on either or both types of governance mechanisms to safeguard uncertainties and opportunism inherent in outsourcing, which enhances manufacturing competitiveness. The important managerial and research implication is that, for making an outsourcing decision, it is insufficient to merely examine the transaction attributes without recognising how various forms of governance mechanisms can be implemented to enhance outsourcing effectiveness.     

大规模海上风电的非并网多元化应用研究——变海上风电场输电上岸为直接输产品上岸的探索

针对海上风电大规模发展成本高、并网难、故障概率高的瓶颈,提出了一种海上大规模风电非并网多元化应用系统。该系统突破海上大规模风电并网的单一应用模式,通过必要的技术创新与集成,将大规模海上风电与高载能产业(如海水淡化、电解水制氢和电解铝等)直接耦合形成一个完整的新系统,变海上风电场输电上岸为直接输产品上岸,不仅破解了大规模、超大规模海上风电应用难题,而且大幅度节省海上风电场投资成本,提高了风电利用效率,具有十分重要的现实和战略意义。     

Research and Technology Outsourcing and Innovation Systems: an Exploratory Analysis

The paper discusses the process of externalization and contracting out of research and technology, in particular the outsourcing of R&D and technical activity formerly undertaken by manufacturing and service companies and now contracted out to other firms and specialist organizations. The growth in the external sourcing of R&D, design and other technical activities by firms has contributed to the evolution of new research and technical markets which have important implications for current conceptualizations of “systems of innovation”.     

What Drives (or Hampers) Outsourcing? Evidence for a Local Production System in Emilia Romagna

The paper investigates the drivers of the outsourcing decisions of firms located in a specific local production system. Different kinds of drivers are considered drawing on different strands of the literature, considering the firm from an organizational point of view, and as a production, industrial and innovation unit of analysis. Theoretical correlations between outsourcing decisions and variables are formulated and tested with respect to a representative cross-section sample of the firms in Reggio Emilia, a local production system in Emilia Romagna. The main result of the paper is that, in the local context investigated, transaction costs do not seem to be a significant driver of outsourcing. The decision to externalize is rather driven by other arguments, strongly based on the resource–competence approach, factors such as the need for tapping into the providers to promote technological innovation. On the other hand, these drivers are contrasted by the industrial relations of the firms, as workers and workers' representatives significantly hamper it, possibly fearing job losses, or at most expect to be involved in the relative decision in order to make it possible or even spur it. These results have important implications, both at the research level—at which they suggest to complement the transaction cost analysis of outsourcing with that of other approaches—and at the management level—at which they support the thesis that external organizational innovations, such as outsourcing, cannot neglect internal organizational aspects, such as human resource management and industrial relations.     

A comparison of institutional systems affecting software advancement in China and India: The role of outsourcing from Japan and the United States

The emergence of new innovation depends on co-evolution with institutional systems. Innovations will stagnate if they cannot adapt to institutions, as illustrated by the rise and subsequent fall of some Japanese innovations in the 1980s and 1990s. Similarly, conspicuous software advancements in China and India can be attributed to their unique institutional systems. While both countries share certain similarities that enable them to develop advanced software that attracts leading countries, the outsourcing partners of the two countries—China with Japan, and India with the US—are related to disparities in their institutional systems that have an impact on their software development. This paper undertakes a comparative analysis to identify such similarities and disparities. Since innovation is shifting from developers’ sites to a process of diffusion and utilization with broader interactions with institutional systems, this analysis can provide important insight into the development of science and technology in a global context.     

The Outsourcing "Prince": Models of Supply Chain Governance in the Italian Automobile Districts

The main hypothesis of this paper is that the economic and social risks of outsourcing for individual and collective actors can be reduced or better controlled if the decentralization processes are the subject of innovative forms of negotiated regulation. But models of supply chain governance are very different not only across countries, e.g. between Italy and the USA, but also across territories within the same country, as in the case of the Italian automobile districts. The results of comparative empirical studies of outsourcing in the USA and Italy underline differences in the form of social regulation, more competitive in the former than the latter. But a comparative analysis of the two Italian regions of Piedmont and Basilicata reveals very divergent territorial patterns of supply chain governance alongside some common tendencies in relation to innovation, industrial relations, and human resource management.     

The Outsourcing "Prince": Models of Supply Chain Governance in the Italian Automobile Districts

The main hypothesis of this paper is that the economic and social risks of outsourcing for individual and collective actors can be reduced or better controlled if the decentralization processes are the subject of innovative forms of negotiated regulation. But models of supply chain governance are very different not only across countries, e.g. between Italy and the USA, but also across territories within the same country, as in the case of the Italian automobile districts. The results of comparative empirical studies of outsourcing in the USA and Italy underline differences in the form of social regulation, more competitive in the former than the latter. But a comparative analysis of the two Italian regions of Piedmont and Basilicata reveals very divergent territorial patterns of supply chain governance alongside some common tendencies in relation to innovation, industrial relations, and human resource management.     

Implementing of a three-phase integrated decision support model for parts machining outsourcing

Parts machining outsourcing (PMO) can be regarded as a strategic weapon to increase product quality and productivity as well as cost cutting in many manufacturing enterprises. However, making an outsourcing decision based on accumulated experience is neither effective nor scientific due to subjective judgement and lack of systematic analysis. Therefore, to systematically help the decision-maker survey and select suppliers to outsource and also to timely achieve the most beneficial portfolio among suppliers in a non-cooperative game structure, this paper proposes an integrated decision support model for PMO using ontology, constraint-based reasoning, fuzzy VIKOR and game theory in three phases, namely supplier prequalification, ultimate selection and order coordination. In the decision-making process, decision factors such as quality, cost and production capability are categorised and put into different phases, respectively, by their characteristics for being measured at a more reasonable method. Finally, a case from a leading printing machinery enterprise is analysed to validate the proposed model. This research is expected to improve the quality and effectiveness of decision-making in PMO.     

Modelling joint outsourcing and offshoring decisions

Offshoring and outsourcing have emerged as two most essential and important strategies for the manufacturing firms globally. This has happened due to the relentless forces of competition and globalisation, which has forced modern manufacturing firms to disaggregate themselves and reach for foreign investments, technological inputs through collaboration and cooperation among markets and partners. Outsourcing and offshoring simultaneously has potential to help the firm to meet three strategic goals i.e. ‘efficiency’ through cost minimisation; ‘exploration’ through an access to the right and technologically capable firm vendors/ Suppliers/ players; and ‘exploitation’ from development of global markets. Both outsourcing and offshoring have grown to a great extent either by the number of companies involved or by the number of multiple nations are involved. Hence, addressing both offshoring and outsourcing strategies together can provides value to the supply chain in economical and efficient way. Therefore, this paper is an attempt to model joint outsourcing and offshoring decision integrated with fuzzy-MCDM approaches using fuzzy data to optimise total cost through right selection of suppliers to meet demand of global markets, thus, achieving efficiency, exploration and exploitation. The model addresses qualitative and quantitative criteria in joint decisions and is also illustrated to show the cost effectiveness.