OUTSOURCING THROUGH STRATEGIC ALLIANCES

Outsourcing Through Strategic Alliances

Outsourcing Through Strategic Alliances

Introduction

Outsourcing is one of the top priorities on the strategic agenda of original equipment manufacturers (OEMs) in many industries. The decision of outsourcing an activity as opposed to doing it in-house and the development of a part or parts system is one of the most complex decisions facing today's industrial managers. Several models have been developed in order to aid in this process. The present paper analyses some of these models, and proposes an extension based on the role that specifications might play in outsourcing decisions. Based on how the specification is generated and on the nature of the data it contains, it can be of significant help in outsourcing decisions. The research reported in the paper is based on a longitudinal study of one automotive OEM (global family), one truck OEM and four medium-sized expert suppliers, all located in Europe. A procurement matrix is developed in which guidance for outsourcing decisions is provided in terms of specification generator, type of supplier, and contract relationship(Adler :2006 :135).

Strategic outsourcing — what do we know

Product development is like solving a huge equation system, it consists of thousands or even tens of thousands of tasks that must be woven into a complex network of relationships between individuals, groups and firms. Outsourcing the development of activities to suppliers creates a strategic, tactical and operational challenge, as both the OEMs and the suppliers need to take advantage of each other's domain of expertise [15 and 24]. Inspired by the automotive industry, more and more firms in the entire manufacturing industry are opting for the outsourcing strategy. However, this does not mean that all activities traditionally performed in-house need to be outsourced. (Ellram :2002 :9) A careful assessment of a firm's assets and resources must precede any outsourcing decision so that only those activities for which the firm do not have any special capabilities or those for which the firm do not have a strategic need are outsourced . Outsourcing is the consequence of the adoption of a resource-based strategy [20 and 29] where firms concentrate on their set of core competencies through which they can provide unique value for the customers and outsource the rest of the activities. For clarification, we will use the word activity when discussing “making” or “buying” (i.e. insourcing or outsourcing), regardless of whether the object of the discussion is an activity (such as design or testing), or a tangible product/part/parts system (such as a tool, a glass mirror or an engine). (Liker :2002 :154)

Not all collaborations between the suppliers and the OEMs are successful; collaboration might have both positive and negative effects. The understanding of these effects can help in better understanding what and how to outsource, and also help to design and improve existing tools for managing the collaboration with suppliers. Let us take a closer look at these effects as they have been discussed in the literature.

Outsourcing models of Quinn and Hilmer

Quinn and Hilmer link many of ...