Materials Supply and Production Outsourcing

Doctoral thesis, 2011

Supplier and customer markets have become more global and have forced companies to consider restructuring their supply chains to take advantage of opportunities in terms of costs, competence, etc. at different locations. One way to take advantage of opportunities in other locations is to outsource parts of the production to suppliers. Production outsourcing implies change from in-house material supply to purchasing materials from a supplier; therefore, production outsourcing can affect material supply in terms of delivery reliability, lead times, and product quality. The focus of this thesis is how the production outsourcing transition from making to buying a product affects material supply. The overall purpose of the thesis is to understand how to ensure reliable and efficient material supply during the whole outsourcing process. With the whole outsourcing process is included from before physical transfer where the decision to outsource is made until a steady state is reached with a continuous supply from the new source. The thesis is answering three research questions using the results of six appended papers. The six papers are based on five studies, i.e., two single case studies, two multiple case studies, and one simulation study. Empirical data in the case studies were mainly collected through interviews with staff working in the outsourcing companies. The first research question identifies what logistics considerations are necessary for each of the phases of a general outsourcing process, in order to accomplish a well functioning supply chain during production transfer and start-up and steady state after physical transfer. The second research question provides a framework for the evaluation of the consequences of outsourcing and the impact on tied-up capital, product quality, customer service, and delivery flexibility of sourcing from a specific supplier. Further, the simulation study showed that supply chain performance can be improved through how the different parts of the supply chain are utilised, which can be accomplished through a sourcing strategy of sourcing stable demand globally and handle uncertainty locally. The third research question describes the material planning environment during production transfer and start-up and shows how the choice and application of the material planning process during production transfer and start-up affects supply chain performance. In the discussion, the results from the research questions were combined and a framework how to ensure material supply during the whole outsourcing process was outlined. The thesis contribute to the material supply research area by identifying how existing processes and methods within the material supply area must be adapted to fit the specific conditions of outsourcing. Contributions to the outsourcing research area are made by showing that to ensure materials supply, the whole outsourcing process has to be in focus i.e., from before physical transfer where the decision to outsource is made until a steady state is reached with a continuous supply from the new source.