Strategic outsourcing for manufacturing firms

The decision for a company or institution to outsource either a manufacturing process or product is intrinsically tied to its tactical and strategic perspective. Tactical outsourcing is typically for near-term cost savings or to gain additional production capability. Strategic outsourcing is typically initiated for fundamental changes in business strategy or direction, but this does not exclude cost saving reasons. Companies that are considering outsourcing some part of their supply chain are currently without a publicly available, general-purpose, analytical tool for decision guidance on the risk-adjusted economic impact of an outsourcing decision. No single analytical decision-support tool can simply evaluate both subjective and objective criteria. The purpose of this praxis is to survey the relevant literature and then to develop an optimization tool based on linear programming that combines objective financial data and subjective risk-based data. This program aims to help businesses decide which manufacturing processes should be considered for outsourcing, and if it would make economic sense to outsource these processes or components.;This praxis builds a bridge between management theory and practical economic analysis---at least as far as outsourcing decision matrices are concerned. Much has been written in the management literature about outsourcing and "virtual organizations." In addition, economics literature articles tend to focus on subcontracting, the "make or buy" decision, general markets, and/or specific case studies of companies. Experts who profess to belong to one or other of the disciplines write for their designated audience, using vernacular that is largely meaningless to the other group. Economics papers focus on the transaction costs, unit costs, and financial measures. Most management papers focus on subjective concepts such as strategy, core competencies, and vision. The more technically based articles from operations research papers focus on algorithm development and applications for finding the new methods of computing costs. The union of management theory and economic analysis is a focus of this praxis.