Low‐Cost versus Innovation: Contrasting Outsourcing and Integration Strategies in Manufacturing

Abstract

This paper analyses how two different outsourcing manufacturing strategies relate to plant performance and innovation capability when taking into account the organizational integration of design and manufacturing as well as product complexity. The study discriminates between low-cost-oriented outsourcing and innovation-oriented outsourcing. The empirical data used is based on a survey of 267 engineering firms, of which half have outsourced manufacturing. We found that the two outsourcing strategies do have different effects, which illustrates that outsourcing represents a trade-off between improving innovation capability and lowering costs. The study furthermore shows that manufacturing and supplier integration in product design processes is mainly beneficial when applying innovation-oriented outsourcing, and in particular when products and manufacturing processes are complex.

Impact of International Outsourcing on Domestic Wage of Singapore Manufacturing Sector

“…For example, Bengtsson et al (2009) found that outsourcing represents a trade-off between improving innovation capability and lowering the cost. The study also showed that manufacturing and supplier integration in product design processes is beneficial when applying innovation-oriented outsourcing, and particularly at complex manufacturing processes.…”

Innovation and Organizational Cost Saving: A Case from Malaysian Innovation Project

“…Schiele et al (2011) found that the procurement of highly innovative products or technology able to achieve the cost saving of the organizations. There exist a trade-off between low cost and innovation strategy (Bengtsson et al, 2009). Sørensen and Torfing (2012) found that innovation assisting much to the corporation in cost saving, product improvement and the most important element is markets extension.…”

Tactics at the category level of purchasing and supply management: sourcing levers, contingencies and performance

“…Similarly, it may be expected that tactical sourcing lever application represents a trade-off between reducing costs and enhancing innovativeness. Sourcing categories that apply cost-oriented activities may lack focus and mechanisms to use the remaining resources for innovation-oriented activities (Bengtsson et al, 2009;Schiele et al, 2011a). Consequently, the current study proposes the following hypotheses: The following sections present the results of a large-scale survey used to empirically test the hypothesized relationships between tactical sourcing lever application and performance.…”

“…Consequently, the current study proposes the following hypotheses: Furthermore, existing studies have found trade-offs between cost-oriented and innovation-oriented supply management approaches. Dankbaar (2007) and Bengtsson et al (2009) reported that innovation-oriented supply chains lead to inferior cost performance compared with cost-oriented supply chains and vice versa. Similarly, it may be expected that tactical sourcing lever application represents a trade-off between reducing costs and enhancing innovativeness.…”

“…Cost and innovation performance are two important purchasing targets that are generally associated with different governance needs and practices (Ateş et al, 2015;Bengtsson et al, 2009;Johnsen, 2009;Schiele, 2010). As firms outsource an increasing number of shares of their value-added to suppliers, the supply management function becomes responsible for an increasing amount of expenditures and supplier competencies.…”