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.