Applying the analytic hierarchy process to the offshore outsourcing location decision

Abstract

PurposeThe purpose of this paper is to show that there is a wealth of academic literature that qualitatively examines the outsourcing and offshoring from a go/no go perspective. The paper examines the complex “where to outsource” question by applying a quantitative approach called Analytic Hierarchy Process (AHP).Design/methodology/approachThe authors examine a Fortune 500 company's real‐world decision about where to outsource and summarize the current selection process employed by the company. We then apply our AHP model to the company's decision and compare the results.FindingsThere are four major findings: the location selection decision is a component of the outsource supplier selection decision; the AHP model effectively manages the complexity of the decision making process, incorporating all decision criteria harmoniously; a method such as AHP, which is able to incorporate both qualitative and quantitative criteria into evaluations, would streamline the decision‐making process; and the AHP process allows firms to look at a portfolio of choices and determine which firms are basically equal in qualifications.Research limitations/implicationsThe research implies that: (AHP may be more applicable in these areas by providing a rigorous framework for assessment of qualitative and quantitative factors together; and AHP offers substantial flexibility to accommodate the variety and quantity of decision criteria set forth by the firm.Practical implicationsAs firms are more active in pursuing opportunities in global markets, identifying the right offshoring location is critical. The selection process is complex, involving a set of qualitative and quantitative factors and requiring rigorous and careful analysis. Therefore, a scientific method that not only offers flexibility and simplicity, but also simultaneously accommodates a wide variety of decision criteria is invaluable. The research demonstrates that AHP provides these benefits and is an effective technique for analyzing the where‐to‐outsource decision.Originality/valueThe extensive literature review suggests that the majority of the existing works focus on analyzing the go/no‐go decision using a qualitative approach. This paper applies the AHP method to the “where to outsource” question to demonstrate one quantitative approach to this complex decision. Additionally, the paper provides a detailed description of how the AHP method is implemented in analyzing the decision by using a Fortune 500 company's data and information as an example.

Fine Slicing of the Value Chain and Offshoring of Essential Activities: Empirical Evidence From European Multinationals

“…This advantage can then be exploited abroad through a global network of subsidiaries that mainly apply and adapt the home-based advantage to the local markets. However, offshoring today follows an upstream logic focused on how companies can tap into resources abroad, including cheap labor, human talent and new knowledge (Boardman et al 2008;Sridhar, Balachandran 1997). According to this logic, competitive advantage is created and developed by sourcing the necessary elements and knowledge from many parts of the world.…”

“…Lured by cost savings, access to talented people and new knowledge, an increasing number of companies in a wide variety of industries, including manufacturing, information technology and services (Boardman et al 2008) have begun to offshore a variety of activities. As competition intensifies and the pace of change accelerates, companies are considering possibilities to globally source products, knowledge and services.…”

A hybrid FCM-AHP approach to predict impacts of offshore outsourcing location decisions on supply chain resilience

“…However, only few have tackled outsourcing location selection. Liu, Berger, Zeng, & Gerstenfeld (2008) have used AHP to select an outsourcing location. Lin, Wang, & Qin (2007) combine AHP and PROMETHEE.…”

“…In addition, a great variety of criteria should be considered to assess the available alternatives, which largely exceed the humans' cognitive ability. Multi-criteria decision making approaches have been widely used to assess available alternatives (Lin, Wang, & Qin, 2007;Liu, Berger, Zeng, & Gerstenfeld, 2008). However, each alternative entails hidden risks (Hätönen, 2009), which have not been considered in previous researches.…”

R&D (Re)location and Offshore Outsourcing: A Management Perspective

“…Whatever the type of behaviour observed, the (re)location of R&D activities is likely to be based on motives that differ from those driving manufacturing offshoring decisions. In this respect, Boardman et al . (2006) build an analytical hierarchy process model to help managers select the most suitable R&D offshore location.…”