A Structured Approach to Outsourcing Decisions
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Helsinki University of Technology |
Diplomityö
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Author
Date
2004
Department
Major/Subject
Teollisuustalous
Mcode
TU-22
Degree programme
Language
en
Pages
86
Series
Abstract
Outsourcing is a very topical subject. The number of out sourced units and functions in industrial companies has grown rapidly during the last decade and the trend is expected to continue. Globalisation of markets and industries provides new possibilities and challenges for manufacturing companies to plan and implement their manufacturing network in a new way. Previous research indicates that the main reason for outsourcing is the striving for better cost-efficiency and cost-discipline. However, according to the literature review carried out for this thesis, there is a lack of structured frameworks to support the outsourcing decision-making in manufacturing companies. Globally operating manufacturing companies need a systematic approach to analyse outsourcing possibilities and to carry out outsourcing decision-making process. To contribute to the development of a structured framework to support the outsourcing decision-making, the following research question was formulated for this thesis: What factors should be taken into consideration and how should the identified factors be evaluated when making an outsourcing decision? The thesis consists of three main parts. First, a literature study was carried out to address the research question. The literature study resulted in a decision-making framework consisting of strategic and tactical analysis of an outsourcing situation. Second, an empirical case study was implemented to test and further develop the outsourcing decision making framework developed in the first part of the research. Finally the research results are discussed and their reliability, validity, and generalizability are evaluated. The main result of this thesis is the structured outsourcing decision-making framework, consisting of strategic analysis and tactical analysis. The strategic analysis focuses on the long-term perspective of outsourcing decisions. The factors to be evaluated in the strategic analysis are: core competence, competitive advantage, supplier capability and strategic risk. The tactical analysis evaluates an outsourcing decision-making situation from the economic and short-term perspectives. The Total Cost of Ownership concept was selected as the basis of the tactical analysis. The decision-making framework was applied in a real outsourcing decision-making situation of component production of a heavy equipment manufacturer. As a result, the framework was considered as useful in structuring the decision-making process and helped in making a systematic evaluation of the decision-making situation. In the case-analysis, the strategic analysis supported outsourcing the production of the component. The tactical analysis gave equal support to keeping production in-house and outsourcing. The case sheds light on the need for structured approaches to outsourcing decisions and on the challenges of applying such approaches to real managerial decision-making situations.Description
Supervisor
Heikkilä, JussiThesis advisor
Kyttälä, JukkaKeywords
outsourcing, strategic analysis, manufacturing strategy
