Jean-Yves MacKinnon

Study of the insourcing decision-making process

2002

SUMMARY

The wave of outsourcing having taken place in the market for the last decade has led several managers and researchers wondering if this practice is indeed a business strategy. This pushed some of them to question the fundamental competences which bring competitive advantages necessary to the survival of their firm.

Following the discontent of several managers with subcontracting experiences, we are witnessing the reassessment of some of those decisions. Two extreme options present themselves: change suppliers or bring back the activities which were outsourced. In this masters thesis, bringing back a function or a previously subcontracted activity is called "insourcing". The decision to insource therefore consists in overturning a previous outsourcing decision. Insourcing is a pretty recent phenomenon. Scientific writings and especially practical examples do not abound. Since no article deals with the insourcing decision-making process specifically, it is necessary to develop an instrument of analysis for the insourcing decisions.

In this study, 20 purchasing managers have been interviewed. The opinion of these supply professionals is especially interesting, since they have a significant input to the make or buy and outsourcing decisions.

The results of this research allow us to conclude that the insourcing decision-making process seems in most cases to be caused by strategic rather than operational elements. Besides, the main triggering factors seem to come to a great extent from the external environment of the firm. By comparing the insourcing triggering factors presented by the supply professionals to the outsourcing triggering factors, we conclude that they are significantly different, based on our sample. Therefore, different factors trigger these two purchasing decisions.

The interviews with the supply professionals showed that the majority of strategy re-evaluations are caused by triggering factors. However, some planned events, such as an organizational policy of periodical reevaluation, point out that some reevaluations are proactive and not resulting from triggering factors. Despite the high percentage of triggering factors considered strategic, the majority of the reevaluations and analyses are primarily based on operational criteria. This is surprising when we consider the strategic level of purchasing decisions.

This study allows for some recommendations. First, the insourcing decisions have major impacts on the firm as a whole. Their strategic character points out for a thorough analysis of the purchasing options available. The creation of a cross-functional team allows the various representatives of the firm to voice their opinions and preoccupations regarding the suggested changes. Second, these cross-functional teams have to include a supply professional. The expertise and experience of these professionals put them in a favored position to contribute significantly to the insourcing decision-making process. Third, the results show the appropriateness of frequent and proactive reassessments of the subcontracting decisions, since these allow to adapt continuously to the changing environment. Fourth, the impacts of the purchasing decisions as well as the high percentage of strategic triggering factors signal the need for the cross-functional teams to analyze the environment using strategic criterions. Fifth, the suggested insourcing decision-making guide provides the managers with a working instrument which supports the decision-making process. The purchasers and other managers could adapt this decision-making instrument by changing the steps and criteria according to their requirements and their firm’s characteristics.

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