The effects of production outsourcing on factory cost performance: an empirical study

Abstract

Access to this document was granted through an Emerald subscription provided by 353605 [] For AuthorsIf you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The purpose of this paper is to investigate the performance implications associated with production outsourcing. Specifically, the paper analyzes the cost of goods sold for firms who outsource core manufacturing processes, using empirical data from a variety of industries. The paper seeks to better understand the influence of outsourcing on factory cost by looking at these in the context of related strategies, such as supplier integration, information technology (IT) implementation, and manufacturing process decisions. Design/methodology/approach -The paper draws on transaction cost economics, manufacturing strategy, and supply chain management literature to aid in predicting the performance to be expected when outsourcing production activities. Furthermore, the paper investigates the moderating effects of manufacturing strategies, supplier integration, and IT expenditures on outsourcing. The primary model is a two-way panel model for the cross-sectional and longitudinal data drawn from the MPI Census of Manufacturers Survey of US manufacturing plants.Findings -The analysis indicates that production outsourcing tends to shift costs among cost of goods sold (COGS) categories, but does not consistently reduce them as measured by overall COGS. The effects of production outsourcing on both the cost of labor and the cost of materials are strong, tending to decrease labor, and increase materials. Additionally, this study shows that a high level of supplier integration has a notable moderating influence on overall COGS, but that process strategies do not. Finally, this analysis indicates that IT expenditures were not influential as a moderator variable when outsourcing, but did have a marked influence on overall COGS, as well as on labor and materials costs. Originality/value -This research investigates the effects of outsourcing on the components of COGS, a level of analysis that is typically not looked at relative to outsourcing. This research also provides methodological contributions with the development of a nested random effects structural model for use with a secondary ...

Are Price-Cost Markups Rising in the United States? A Discussion of the Evidence

“…Outsourcing work would reduce the labor component of COGS but increase the intermediate input component, and should not change the total appreciably. This hypothesis is consistent with the findings of Mexell,Kenyon and Westfall (2014).…”

Production outsourcing and operational performance: An empirical study using secondary data

“…We expect then that manufacturing plants would outsource production activities not only to reduce costs below in-house production, but also to improve operational performance in one or more operational areas such as first pass yield rates, equipment utilization, equipment availability, cycle times, lead-times, on-time delivery rate, or other metrics as appropriate for their respective strategies, industry, and markets. Given that earlier research found that the outsourcing of production activities did not lead to significant improvements in costs (Meixell et al 2014), we focus here instead on the overall operational effectiveness of the firm's production processes.…”

“…Gylling et al (2015) also found that re-shoring is occurring become of increasingly accurate cost allocation where outsourcing is concerned, and because of pressure for shorter lead-times in response to customer demands. U.S. manufacturing plants have not consistently experienced improvement in performance when outsourcing some portion of their operation (Meixell et al 2014). Some plants have improved performance (Dess et al 1995;Lei and Hitt 1995) while others have mixed or negative results in cost efficiency, productivity and profitability (Jiang et al 2006;Broedner et al 2009).…”

Outsourcing Na Indústria Paranaense: Um Estudo Empírico

“…Sob esta ótica, o outsourcing das atividades de produção tem apresentado um efeito significativo sobre a forma como as indústrias de transformação e serviços têm desenvolvido seus produtos, no que tange as decisões make or buy, ou seja, produzir internamente, ou comprar de um fornecedor externo (MEIXELL; KENYON; WESTFALL, 2014). De modo que as atividades que não são competências essenciais, devem ser transferidas para terceiros, permitindo à entidade concentrar-se naquilo que ela consegue fazer com maior qualidade, produtividade e menor custo (FERRUZZI, et al 2011;MEIXELL, 2014).…”