A conceptual framework for understanding the outsourcing decision

Vining, Aidan R.; Globerman, Steven

doi:10.1016/s0263-2373(99)00055-9

Cited by 126 publications

(94 citation statements)

References 49 publications

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“…The outsourcing costs include governance costs for managing business relationships, commonly referred to as transaction costs [17]. Arnold [18] identifies three key points to consider in the decision to outsource.…”

Section: Outsourcing Decisionsmentioning

confidence: 99%

“…Outsourcing however reduces the degree of control, and in situations of few suppliers, powerful suppliers could exploit the opportunity to demand more beneficial conditions [20]. This behavior is commonly referred to as opportunism [17,21] and for activities with high asset specificity, the risk for this behavior is higher [17].…”

Section: Outsourcing Decisionsmentioning

confidence: 99%

“…However, if there is uncertainty about the production process itself due to complexity or changes in the activity or products, costs can be difficult to predict. If such an activity is outsourced, the risk for being exposed to opportunistic behavior is raised [17]. For harvesting operations in Sweden, the activities and products are homogeneous, offering a low risk for outsourcing.…”

Section: Outsourcing Decisionsmentioning

confidence: 99%

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The Impact of Industrial Context on Procurement, Management and Development of Harvesting Services: A Comparison of Two Swedish Forest Owners Associations

Erlandsson

2013

Forests

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Increasing demands to harvesting production and quality require improved management practices. This study's purpose was to analyze the impact of industrial context on procurement, management, and development of harvesting services. Using interviews, functions were modeled at two forest owners associations (FOAs) with outsourced harvesting services. One FOA had its own sawmills, requiring frequent harvesting production adjustments to meet varying volume demand in the short-term. The long-term uncertainty was however low because of good visibility of future demand (>6 months). The other FOA did not own mills and produced wood according to fixed six-month delivery contracts. This meant few short-term production adjustments, but long-term uncertainty due to low visibility of future demand. Demand uncertainty resulted in corresponding needs for harvesting capacity flexibility. This could have been met by a corresponding proportion of short-term contracts for capacity. In this study, however, a large proportion (>90%) of long-term contracts was found, motivated by a perceived contractor shortage. It was also noted that although contractor investment cycles (4-6 years) matched the FOAs' strategic horizons (3-5 years), contractors' investment plans were not considered in the FOAs' strategic planning. The study concludes with a characterization of different FOA contexts and their corresponding needs for capacity flexibility.

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Section: Outsourcing Decisionsmentioning

confidence: 99%

Section: Outsourcing Decisionsmentioning

confidence: 99%

Section: Outsourcing Decisionsmentioning

confidence: 99%

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The Impact of Industrial Context on Procurement, Management and Development of Harvesting Services: A Comparison of Two Swedish Forest Owners Associations

Erlandsson

2013

Forests

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“…Conceptually, the costs and benefits accruing to a firm producing required parts or subcomponents internally are weighed against the financial and managerial consequences of outsourcing via competitive bidding by suppliers of the products (Callioni et al, 2005;Dekker, 2004;Groot and Merchant, 2000;Meer-Kooistra, 1994;Quinn and Hilmer, 1994;Speklé, 2001;Vining and Globerman, 1999). Economic theorising on transaction costs has shaped accounting thought on firm structure over a long period.…”

Section: From Virtual Links To Alliancesmentioning

confidence: 99%

“…Creating an alliance can be time consuming with resources being required to set up a workable trading infrastructure. There has to be an infrastructure and a willingness to share operational information including accounting information between the trading entities (Dyer and Singh, 1998;Handfield et al, 2000;Vining and Globerman, 1999).…”

Section: From Virtual Links To Alliancesmentioning

confidence: 99%

Management Accounting in a Digital and Global Economy: The Interface of Strategy, Technology, and Cost Information

Bhimani¹,

Bromwich²

2009

Accounting, Organizations, and Institutions

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Impact of ownership structure along the value chain in the manufacturing business

Scholtz

2015

AIChE Journal

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In the chemical and petrochemical industry it is quite common that the manufacturing of a final product is the result of several consecutive steps which can be owned and operate by one or many participants. Although not always practical, equal ownership among all partners along the value chain is often recommended as a way to simplify business structure, ensuring all partners share equally in the ups and downs of an uncertain market. In contrast to this approach, there are instances where more benefit can be derived from having different owners and operators along the value chain. Examples which are common practise in the industry are the supply of utilities (e.g. electricity), feedstock and services. In these cases the non-integrated approach offers value as: It provides the operator of the upstream or utility plants the opportunity to specialize, for example, by operating very similar plants around the world. Such specialization enables the use of regional operating centres, minimum onsite cash costs, optimized operating conditions, minimized energy consumption and the optimal use of other variable cost parameters. This paper shows that if outsourcing results in a cash cost saving by an upstream operator, the benefit to the downstream owner will (in financial reward) be 1 proportional to the cash cost saving achieved. In absolute terms, the magnitude of the benefit is moderated by the size of the downstream capital investment. (The bigger the downstream investment relative to the upstream investment, the smaller the impact of the saving on the economics of the downstream company.) As a "utility provider" an upstream operator benefits from lower risk in terms of offtake and market price uncertainties. Such owners benefit from a lower cost of capital, and as such also have lower return expectations than players further along in the value chain (who are exposed to all the uncertainties in volatile markets). This paper shows that the positive impact of such benefits to the return of the downstream partner is directly proportional the difference in return expectations between the upstream and downstream company. Once again, the absolute magnitude of the saving becomes more substantial as the ratio of upstream capital investment increases relative to the downstream capital investment. Economy of learning may also enable a specialized upstream company to obtain an asset at a lower capital than a less specialized downstream operator. This paper shows that the positive impact of such a benefit is very similar to that of a lower return expectation by the upstream company.

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A conceptual framework for understanding the outsourcing decision

Cited by 126 publications

References 49 publications

The Impact of Industrial Context on Procurement, Management and Development of Harvesting Services: A Comparison of Two Swedish Forest Owners Associations

The Impact of Industrial Context on Procurement, Management and Development of Harvesting Services: A Comparison of Two Swedish Forest Owners Associations

Management Accounting in a Digital and Global Economy: The Interface of Strategy, Technology, and Cost Information

Impact of ownership structure along the value chain in the manufacturing business

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