Academic journal article Journal of Supply Chain Management

Outsourcing in the Chemical and Automotive Industries: Choice or Competitive Imperative?

Academic journal article Journal of Supply Chain Management

Outsourcing in the Chemical and Automotive Industries: Choice or Competitive Imperative?

Article excerpt


The outsourcing of manufacturing is a strategic option which in some cases represents a choice and in others a competitive imperative. In this article, the authors explore the approaches of sample firms in the chemical and automotive industries to the outsourcing of manufacturing. Based on clinical research done with companies participating in IMD's Manufacturing 2000 project, the authors conclude that the outsourcing of manufacturing is not a panacea, but rather a strategic choice, which is business dependent. In the cases where it is pursued, the need for firms to focus on the managerial challenges of selecting appropriate partners for the long term and building and nurturing a mutually rewarding relationship is stressed. Setting and realizing an aggressive improvement agenda is required by each partner to make the necessary transformations to sustain the relationship in the long term.


The outsourcing of manufacturing was an agenda item for a Manufacturing 2000 board meeting held in October 1996. Started in 1990, Manufacturing 2000 [1], an IMD research initiative in collaboration with industry, had been supported since its inception by 22 organizations, mostly large multinational firms. Its mission was to identify both the changing requirements for manufacturing excellence and the appropriate organizational responses in manufacturing companies.

During the discussion with the senior executives present, it became apparent that some confusion and frustration accompanied their experiences in the outsourcing of manufacturing. Their concerns could be simply summarized in terms of what was and what was not working and why. Several board members volunteered to give the authors access to their operations with a view to documenting the way in which outsourcing decisions were made as well as how outsourcing strategies were formulated and implemented. This article synthesizes these observations as they apply to the outsourcing of manufacturing in the chemical and automotive industries.

During the mid-1990s, the business press was replete with articles extolling the virtues of the outsourcing of manufacturing. Indeed, Trent and Monczka (1998) reported that, based on survey data, firms would increasingly rely on external suppliers as a source of product and process technology. But be that as it may, the Manufacturing 2000 board members were somewhat skeptical of this trend. Was the outsourcing of manufacturing all that it was cracked up to be?

Additionally, concerns were being raised about the selection of appropriate suppliers. While supplier selection has been extensively addressed in the literature [for example, Spekman (1988)] the executives were displaying some discomfort regarding the appropriateness of their current approaches to supplier selection and evaluation. They seemed to be drawing a distinction between suppliers on the one hand and potential partners on the other. Furthermore, while they recognized the need to manage such relationships in the long term, the challenge was to actually apply existing guidelines such as those proposed by Dwyer et al. (1987) and more recently by Ellram (1991).

In conducting the research, the authors chose to focus on both the automotive and chemical industries in order to compare and contrast the formulation and implementation of outsourcing strategies for manufacturing, and to build on their previous research in the automotive industry. Collins et al. (1997) developed two models, the Supplier Profile Matrix and the Stairs of Transformation, to facilitate the understanding of the managerial challenges related to partner selection and the building and nurturing of the relationship when manufacturing is outsourced.

The outsourcing of manufacturing is a strategic option, which needs to be critically assessed not only in light of the structure and dynamics of the industry in which the firm competes, but also its positioning, and whether outsourcing will lead to achieving a sustainable competitive advantage. …

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