OUTSOURCING VALUE CREATION ACTIVITIES: ACHIEVING OVERALL OPTIMAL PERFORMANCE

Shishank Shishank1 Dr. Rob Dekkers2

1

Research Student, University of the West of Scotland, Paisley Campus, High Street, Paisley, Scotland, PA1 2BE. Telephone: +44 141 848 3664 - Email: shishank.shishank@uws.ac.uk
2

Division Management & Business Economics, University of the West of Scotland, Paisley Campus, High Street, Paisley, Scotland, PA1 2BE. Telephone: +44 141 848 3876 - Email: rob.dekkers@uws.ac.uk

ABSTRACT Decision-making on outsourcing takes place at different levels of strategic, tactical and operations within a company. Distinguishing these levels will help assigning specific frameworks and requirements for each of these three processes and simultaneously assist in free and continuous flow of information from one framework to another. During the stages the decisions differ; during pre-design it concerns mostly of subsystems or equipment and during later stages it turns to detailed production planning and is based on the availability of information and different levels of aggregation. In stages information is transformed according to specific requirements of the individual process hence, probability of distortion of this information during change remains high. In light of the significant impact outsourcing has on the overall performance of the organisation, the development of an integrated multi decision making criteria and a framework on different aspects of outsourcing incorporating the accurate transformation of information during different stages. Keywords: Manufacturing, Decision-making, Strategy

INTRODUCTION Over the many years outsourcing has played a vital role in the overall performance of the organisation. Outsourcing has been viewed as a form of predetermined external provision with another enterprise for the delivery of goods and/or services that would previously have been offered in-house (Quinn & Hilmer, 1994; Beaumont & Sohal, 2004; Finlay & King, 1999; Elfring & Baven, 1994). This is especially true in light of recent managerial trends that advocate focusing on core competencies to gain competitive advantage in the industry (Quinn & Hilmer 1994). The prospective of outsourcing has now shifted from activities like ICT to outsourcing value creation activities such as design, engineering and manufacturing engineering. However, organisations do not have a set criteria and a model, which supports the decision-making during different stages of the value creation activities in terms of outsourcing (McIvor 2000; Dekkers 2000). The information available to the managers and engineers

during the different stages of these value creation activities of design, product development and engineering is incomplete and hence, not all desirable information for decision-making is available. But both the engineers and managers will need to make decisions on sourcing of subsystems, components and parts at all stages of design, engineering and manufacturing engineering. The current literature, as will be demonstrated later, calls for the development of an integrated decision making model criteria and a framework on different aspects of outsourcing incorporating the accurate transformation of information during the different stages of these value creation activities and the criterion adapted by the engineers and the management in the industry. BACKGROUND Industrial companies face a challenging environment. The global market affects industrial companies by the competitive environment and the possibilities for outsourcing. This is discussed by Dekkers 2000, where he presents how globalization affects manufacturing with the development in data and telecommunications, in information technology and the diminished trade barriers. This leads to the possibility of manufacturing and assembling of parts and products at the most suitable place anywhere in the world. Boeing for its new 787 Dreamliner outsourced its manufacturing process to 70 suppliers across the globe. Boeing increasingly focuses on its core competencies in high-end design, engineering and systems integration, outsource to suppliers that are highly focused on their own core competencies, continually striving to create additional value in everything they do while achieving optimal performance of operations. By specializing on a limited activity structure, outsourcing companies have been able to improve the performance of their in-house activities (Quinn & Hilmer, 1994; Ellram and Billington, 2001). Baxter et al. (1996) suggest that companies shift away from vertical integration to strategic dualism and clustered control. Hence, outsourcing becomes not only an issue for decisionmaking (Dekkers 2006) but also demands for continuous and free flow of information during the different stages of value creation activities. The state-of-the art communications technology enables the organisations to control activities at great physical distances without the necessity of meeting or traveling around the world. Due to increased competition, companies face the choice of either specialization or differentiation. Both choices provide opportunities for cost-reduction, improving leadtime and meeting customer demands. The challenges handling the varying lot sizes, reduced lead times and increased product variety have left the manufacturing industries with no other alternative than to modify their strategies as per the contemporary market environment (Chan et. al, 2006). Outsourcing decisions (Baden-Fuller and Hunt, 2000) play a vital role in the overall performance of an organisation. According to Quinn and Hilmer (1994), a major strategic concept in outsourcing decisions is core competencies. Outsourcing raises the key issues which areas of the manufacturing are needed to maintain the value-added chain and on which key areas the company should concentrate for achieving optimal performance. Beaumont et. al 2004 emphasis that the decision on outsourcing depends on whether to insource or outsource the activities based on the objective to achieve long term competitive advantage and optimal performance (Klier 1994). However, to address contemporary issues of manufacturing, industrial companies need an integral approach to bridge strategy and operations. SCOPE OF PAPER History of outsourcing is aptly summarized by Lonsdale and Cox (2000) as some kind of substitute for conglomeration, horizontal integration, vertical integration, and internal integration. As Beaumont and Sohal (2004) suggest outsourcing is a fashionable way of solving some business problems and there are numerous reports of its increased use. On the other hand, outsourcing is a strategically important activity that enables an enterprise to achieve both short and long term benefits (Wu et al., 2005).

Strategic outsourcing in terms of sustaining long term performance (Wu et al., 2005), the transaction cost theory (Williamson 1979) and the core competency model (Quinn, 1994) are well discussed by academia. The literature available on outsourcing decision making models suggests that none of these models take into account the criteria of free flow of information during the different stages of value creation activities (Dekkers, 2000). In light of the significant impact outsourcing has on the overall performance of the organisation, the motivation for developing an integrated multi decision model and framework on different aspects of outsourcing incorporating the accurate transformation of information during the different stages of these value creation activities and the criterion adapted by the engineers and managers in the industry is evident. This paper addresses this issue from the point of view of the non availability of complete and undistorted data for decision making during the different stages of the value creation activities i.e. design, engineering and manufacturing engineering. OUTLINE OF PAPER The first part of this paper reviews the current literature in this area from a strategic, tactical and operational level. The paper reviews the mechanism beginning with an overview of a process model (Dekkers, 2002) for outsourcing. The second part of this paper looks at the requirements for an outsourcing decision making model framework(s) with continuous information flow. Finally a conclusion is provided. LITERATURE REVIEW There are, of course, many reasons for outsourcing, the main one being the ability to purchase components, sub-assemblies, finished products or services from outside suppliers when internal production capacity is limited. An enterprise will also outsource its business when it does not possess the crucial technology, but still wants to seize the business opportunities presented (Wu et.al, 2005; Julka et. al., 2006; Klier 1994). Outsourcing enables an organisation to better marshal its own resources and those of external agents who have the required expertise and specific technologies to accomplish all the tasks involved (Wu et. al 2003). Effective use of outsourcing will, therefore, allow an organisation to focus on a limited set of strategically important tasks and will in turn lead to continuous development of core competencies (Quinn 1992; Kotable 1990; Venkatraman 1989). For many years companies have been encouraged to pursue strategies of identifying and focusing on core competencies the skills, knowledge and technologies that a company must own in order to compete effectively (Hamel and Prahalad 1994). Over time, the perceived potential for outsourcing has expanded to include critical areas of activity such as design, manufacture, marketing, distribution, and information technology with almost the entire value chain open to the use of outside supply (Jennings 1997). However, this does not lead directly to a clearly defined manufacturing strategy for global manufacturing (Dekkers 2002). Before embarking on the issue of undistorted and free flow of information across the different stages of design, engineering and manufacturing engineering, it is necessary to understand the requirement of transformation of information across these different stages in context of outsourcing. For this purpose the process model (Figure 1) defined by Dekkers (2000) for outsourcing is used in this paper.

Preselect ion of Suppl iers

Defining Manufacturing strategy and strategic decision making on outsourcing

Tactical Decision making on outsourcing

Pre-Design

Deve lopm ent of Manu factur ing Proce ss

Design

Engineering

Purchasing and Contracting

Manufacturing Engineering

Suppliers

Manufacturing and Assembly

Figure 1: Process Model for Outsourcing at strategic, tactical and operational level. (Source: Dekkers 2000)

The model ranges from early supplier involvement during the design and engineering phases to operational decisions during manufacturing. This model takes into account both the market strategy and manufacturing strategy to achieve the optimal performance levels. A transparency is required with regards to outsourcing, relating products to processes, performance requirements and core competencies whilst making decisions. Outsourcing at strategic, tactical and operational level In an organisation decision-making on outsourcing takes place at strategic, tactical and operational levels (Dekkers 2000). Figure 1 represents this notion, showing the breakdown of overall strategy into its components. It is important to distinguish these three levels to help assigning specific frameworks and requirements for each of these three processes. Outsourcing at strategic level Strategy here refers to a set of co-ordinated objectives, action programmes applied to the firms manufacturing function, acquiring resources, the utilization of these resources and linking them. Strategy suggests how the resources should work together to achieve objectives (Brown et. al, 2003) including the achievement of the performance levels at optimal level (Haberberg et al 2008). Hayes and Pisano (1994) assert that a successful manufacturing strategy is not simply manufacturing by, for example, adopting JIT, JIS, TQM, or some other three-letter acronym it is a strategy for using manufacturing to achieve competitive advantage and optimal performance levels. The manufacturing strategy ensures a match, or congruence, between the companys markets and the existing and future possibilities of enhancing performance levels of an organization (Brannemo, 2005). Outsourcing is one of the many notions like supply chain management, vertical alliances, lean supply and industrial

networks that have emerged from the extensive amount of literature produced in the last two decades in relation to manufacturing management. Outsourcing links capabilities to the availability of resources as part of a network, extending beyond current performance capability of the organizational itself (Bock 2007; Jennings 1997; Philpott et al., 2004; Dekkers 2000; Wang and Chen, 2008). Indeed there is evidence that outsourcing contributes positively to market value of an organisation (Rappaport, 1986; Hayes et. al. 2000). Furthermore, for outsourcing to be meaningful, both value creation and value appropriation processes must be appraised (Auguste et al., 2002). For many activities, outsourcing has been adopted on a simple value-for-money basis (Alexander and Young, 1996). This is supported by the research conducted by Lonsdale and Cox (1997) which suggests that outsourcing decisions are rarely taken within a thoroughly strategic perspective, with many firms adopting a short-term perspective and being motivated primarily by the search for shortterm cost reductions. The strategic approach to outsourcing provides the firm with information about main activities that can potentially be outsourced (Quelin and Duhamel, 2003). When considering outsourcing at strategic level, the value chain expresses the necessary processes and order flows for delivering goods and services to customers (Dekkers 2000). Furthermore, with the advent of ecommerce and the relative ease with which suppliers across the world can be identified (Momme 2002) leads to the supply chain being wide open (Jennings 1997) to the use of outside supply. Analyzing the firms value chain reveals the value created by the various activities in its chain (Heikkila and Cordon, 2002). It also reveals the activities are linked to each other and to other activities in the whole value system. The management of the linkages among activities in the system is essential to creating and sustaining competitive advantage. Porters concept of value chain (Porter 1985) supports that optimization over the whole value chain aims at meeting the customer needs and achieving overall performance requirements. Because of intense competition, organizations are forced to reassess and redirect scarce resources (Jennings, 2002; Ketler and Walstrom, 1993; Kriss, 1996; Razzaque and Chen 1998; Dritna 1994; Ketler and Walstrom 1993; Leavy 1996; Quinn 1999) via different forms of cooperation like acquisition, alliances, joint ventures, consortia, and networks which depends on overall control mechanisms with their supportive information systems needed to kept upto-date with the changing environment (Johnson et al., 2008 page 358). Strategic decisions in an organisation are based on business environment, costs, supplier relationships, technology and capability (Jennings 1997; Talluri and Narasimhan 2002). Understanding the clients as well as business needs is the requirement for setting the performance criteria to achieve optimal performance levels. As the subsystems are in a continual state of interplay the feasibility of course of action for each of these set criterions is important for achieving the set goals. There are, however, potential pitfalls when outsourcing for strategic reasons. As quoted by Kremic et al., 2006 organizations may give away the crown jewels if they are not careful (Gillett, 1994). If companies outsource the wrong functions they may develop gaps in their learning or knowledge base which may preclude them from future opportunities (Earl, 1996; Prahalad and Hamel, 1990). Specifically, in highly integrated and evolutionary technologies, applying the traditional core competencies tests may result in outsourcing too many or the wrong functions. Literature also suggests that in industries with complex technologies and systems, internal synergies may be lost when some functions are outsourced (Quinn and Hilmer, 1994).

Outsourcing at tactical level When a customer orders a product for delivery and engineering has to start, the combined capabilities of engineering and manufacturing determine performance of the overall process (Dekkers2002). To achieve the integration, manufacturing management should participate actively in product development (Bock 2008; Hayes and Wheelright 1984; Welch and Nayak 1992). Therefore, product development should address issues for manufacturing strategy to gain competitive advantages and achieving acceptable levels of performance (Fogarty et al., 1989). As Dekkers 2000 points, the issues that need to be addressed to gain competitive advantage are: Managing the value chain. This includes decision-making on alliances and networking to supply new products to the markets. Improving the core competencies and exploiting outsourcing for optimization of manufacturing processes. Paying attention to process innovation for meeting performance requirements.

A strong co-operation and communication between product development and manufacturing leads to growth of these issues. Erlandson and Yxkull (1993), mentions product development concentrates mostly on the products and its aspects, so if manufacturing aspects were to be addressed, they need to be compared with decision-making on product level. Furthermore, Dekkers 2002 suggest that the use of stage/gate methodologies prove important for managing product development, at each gate assessment of manufacturing aspects allows linking the manufacturing strategy to product development. The manufacturing aspect should include outsourcing (Dekkers 2000, Tsai et al., 2005), production planning (Malhotra et al., 2001; Julka et al., 2006), materials management (Brown et al., 2003), technological criteria (Dekkers 2000), performance requirements (Brown et al., 2003) and process development (Dekkers 2002). Process development refers (Dekkers 2002) to improving the existing manufacturing methods, the sourcing of new processes and the assessment and acquisition of new manufacturing technologies. Descending the product structure results in greater detail both for descriptions of the product and processes (Figure 2).
Product

Assembly 1

Assembly 2 Increase in Detail

Sub-Assembly

Component

Part

Figure 2: Product Structure (Source Dekkers 2000)

The decision-making while descending the product structure should be transparent in terms of outsourcing, relating product to processes, performance requirements and core competencies during different stages of these value creation activities such as design, product development, engineering and manufacturing engineering. Outsourcing at operational level Outsourcing decision-making at operational level takes into account capacity utilization in view of optimizing performance levels (Dekkers 2002) and competitive analysis (Momme 2002). Laudon and Laudon 1998 refer to the focus on capacity utilization, seen from the point of view of managing outsourcing. Wang and Chen 2008 suggest process mapping by information systems will reveal which operational decisions (Probert et al. 1999; Ashford , Dyson and Hodges 1999) on outsourcing improve overall performance. This reflects the interrelationships of existing activities and resources as well as the interdependencies of the decision-making during the different processes (Philpott et al, 2004). The strategic, tactical and operational outsourcing activities must be viewed as derivatives of the competitive priorities and decision categories that define the manufacturing strategy (Hayes and Wheelwright, 1984; Miltenberg, 1995) and to achieve the optimal performance levels (Dekkers 2000; Johnson, 1997). MANUFACTURING AS PART OF THE PRIMARY PROCESS Since manufacturing is a part of the total primary process, strategy is too. Figure 3 shows the breakdown of the overall strategy into its components: marketing strategy, product development strategy and manufacturing strategy. Although each strategy will generate in depth details, these strategies should have a strong common link but the factual direction of the separate strategies diverges (Wheelwright 1984, Dekkers 2002) during the implementation of decision-making in each field, thus reducing the total efficacy from strategy formulation and implementation.

Overall strategy

Marketing strategy

Product development strategy

Manufacturing strategy

Figure 3. Components of Strategy

Figure 4 depicts manufacturing as a part of the total primary process. Manufacturing provides the marketplace with products by being a subsystem on its own, as well as connecting the processes of product development and engineering to the market. The new competitive landscape in many industries

is one of ongoing and heightened levels of competition, which demands flexibility, delivery speed, and innovation. However, firms remain highly dependent on an elite strategy-making group at the top of the organisations hierarchy (Hayes and Wheelwright, 1984; Brown, 1998a).As a result of this, a state of strategic dissonance (Brown, 2000) occurs not only in firms chosen markets but also within the firm itself; in the mismatch between strategic intent (Hamel and Prahalad, 1989) and operations capabilities (Canez et al., 2000; Seeley et al., 2001). The firms need to integrate their strategies to achieve the overall optimal performance levels (Dekkers, 2000; Jiang and Qureshi, 2005).
Domain of engineering
Pre-Design

Design

Domain of sales
Engineering

Purchasing and Contracting

Manufacturing Engineering

Manufacturing

Suppliers

Sub-assembly & Assembly

Domain of Manufacturing

Figure 4: Total Primary Process (Source: Dekkers 2002)

Manufacturing management is confronted with increasing pressure on overall performance (Nellore and Soderquist, 2000; Howells, 1999; Murray and Kotabe, 1999) and reducing costs (McCarthy and Anagnostou, 2003; Koszewska, 2004). The issues for management relate to the set-up of the primary process and control, leading to increased competitiveness in todays global market. Schroeder et al. (2002) argue that managing resources and creating competitive advantage by meeting performance requirement does not suffice, since creating unique proprietary processes and assets contributes strongly to profitability and long term competitiveness. In effect, this notion links to research undertaken in to the adaptation of organizations to the dynamic changes of the environment (Dekkers, 2000). This point to major issues within the manufacturing strategy: capabilities relate to outsourcing and process innovation, and capabilities relate to strategic and tactical resource management. The strategy should eventually define performance requirements (Teece, 1987; Anderson and Weitz, 1986) and the criteria to meets the strategic objectives. In other words strategy has two components: the exploitation of the competitive advantage and the acquisition plus utilization of resources to create advantage (Dekkers, 2002; Doh, 2005). Therefore, it is axiomatic that manufacturing should be connected to the overall primary process to improve the overall performance of the resources and structure the utilization of resources by making explicit decisions on outsourcing, whether it concerns suppliers, alliances or partnerships, provides an opportunity to achieve optimal performance levels and adapt more flexibly to the changing market demands imposed on the industrial firms. This is backed up

by Wheelwright (1984), Mole et al. (2001), Taps (2001) who suggest that the manufacturing strategy should be incorporated in to the overall corporate strategy to achieve long term competitiveness. As an important aspect of the strategy, outsourcing provides the opportunity for acquiring manufacturing technologies to expand capabilities (Kogut and Zander, 1992; Teece et al., 1997; Levy, 2005, Momme, 2001). At the same time it enhances the focus on the firms own capabilities to achieve leveraging of the performance of its manufacturing system (Friedrich, 2000). Thus outsourcing evolves from both technological demands and performance requirements. The recognition of competencies creates insight into the load on the available resources, and the remaining capacity of resources is available for optimizing the performance of manufacturing through in- and outsourcing. EXISTING OUTSOURCING DECISION MODELS The outsourcing decision making models discussed in the literature take into account the concept of core competencies (Prahalad and Hamel, 1990), control of component knowledge (Quinn and Hilmer, 1994), long-term performance (Wu et al., 2005), strategic decision making and core competencies (Dekkers 2000), combination of transaction cost economies and the core competencies concept (Arnold 2000). The major ideas of the outsourcing decision models proposed by Prahalad and Hamel (1990), Quinn and Hilmer (1994), Olsen (1997) and Dekkers (2000) are summarized in Table 1.
Table 1: Comparison of outsourcing decision models by Prahalad and Hamel, Quinn and Hilmer, Olsen and Dekkers

Approaches to outsourcing In house manufacture

Prahalad and Hamel (1990) Critical effect on feature of final product (core component) Nil

Collaboration

Quinn & Hilmer (1994) High potential competitive edge; high strategic vulnerability (high control component) Medium potential competitive edge; medium strategic vulnerability (medium control component) Nil

Olsen (1997) Nil

Dekkers 2000 Critical effect on the final product (core component)

High strategic importance of purchasing; difficult to mange the purchasing situation. Nil

Transformation of information during different stages

Nil

High strategic importance of purchasing; difficult to mange the purchasing situation. Nil

Source: Derived from Wu et al., 2005 and Dekkers, 2000

The core competency model by Prahalad and Hamel, 1990 is based on the identification and strengthening of core competencies within an organisation. They identified access to wide variety of markets, a significant contribution to the perceived customer benefits of the end product and difficult for competitors to imitate. A core competency is one which is critical to the functioning of the product; a non-core component denotes otherwise. In practice it may be difficult to judge with certainty whether a product or process should be categorized as core or non-core (Murray and Kotabe, 1999; Hibbert 1993; McIvor, 2000).The application of concept of core competencies in outsourcing became very popular among researchers. The concept has been predominantly used to develop and test various outsourcing decision frameworks arguing that the core activities shall remain in house. Quinn and Hilmers model (1994) focuses on the control of component knowledge. The properties of components including the potential competitive advantage and strategic vulnerability form the basis of this model. Here, Vulnerability denotes the degree to which the technological content of a particular component can be deciphered and captured by a competitor. Olsens model (1997) seems to place an emphasis on the effect of outsourcing on production with the aim to avoid disruption. As Wu et al, 2005 suggest this model employs two indices: one to indicate difficulty of sourcing a component, and the other the criticality or relative importance of that component. Olsens model emphasis on the effect of outsourcing on production with the aim to avoid disruption. Its main line of thought still seems to be dictated by the traditional outsourcing, ignoring the important issue of long-term performance. Dekkers model (2000) assists management in strategic decision-making, supports the phases of development and engineering, and improves production planning. It combines technological aspects and performance criteria, allowing co-operation between development, engineering and manufacturing. This model combines process mapping with decision-making. At each level of the product structure, processes are mapped and compared to technological and performance criteria. This model includes decision-making on outsourcing during the stages of product development. On summarizing the contents of Table 1, it is clear that in literature little or no research has been undertaken on the development of an integrated concept of outsourcing decision making model during the different stages of design, engineering and manufacturing engineering incorporating the free flow of information across the stages of these value creation activities. Furthermore, figure 2 depicts that information is transformed and becomes more complex as it descends the product structure. In which case outsourcing decision making during the different stages of the value creation activities should be transparent while undertaking process innovation and manufacturing management. OUTSOURCING AND FLOW OF INFORMATION In most theories about outsourcing processes the perspective has been focused on exploring certain issues emerging within the phases of the process (Perunovic and Pedersen, 2007). It has been admitted that the information is not perfect and new economical models emerged to explain situations where two parties possess unequal or none quantity of information. Application of the economy of information in manufacturing management is associated with outsourcing decision-making during the different stages of the value creation activities such as design, engineering and manufacturing engineering (Figure 4). Undistorted and free flow of information is necessary to facilitate the managers and engineers in outsourcing decision-making. However, the economy of information hasnt been explicitly used in the studies of the outsourcing decision-making process (Perunovic and Pedersen, 2007).

FUTURE RESEARCH The research so far led to the review of the literature on outsourcing decision-making models. During further research a decision-making model will be designed to incorporate the economies of information during the different stages of the value creation activities. Secondly, the prototype will be tested via multiple case studies in the manufacturing industry across Scotland. The prototype will be developed in stages and development of each stage will be influenced by the performance of previous designs or deficiencies in the decision making criteria will be corrected to meet the functionality, robustness and the desired goal. Thirdly, the intension exists to transfer the method into a tool for use by professionals in manufacturing management. The method as such will provide guidelines for the development of this tool. CONCLUSION This paper is the first in series of the overall exploratory study to be conducted as a valuable means of searching the literature; to seek insights; to ask questions and to assess phenomenon in a new light on outsourcing and related subjects. Traditionally, the study of outsourcing and its determinants has focuses on economics approaches, such as from the perspective of transactional costs theory, which has received much empirical support in outsourcing decision making analysis (Walker and Weber 1984; Murray et al., 1995). Furthermore, Tomas and Vicor (2005) analyzed outsourcing with a strategic approach using resource-based view of the firm as the reference point. Quinn and Hilmer (1995) suggested that firms concentrate on resources and capabilities where they can achieve pre-eminence and provide unique value for customers. As Dekkers (2002) identifies that strategic resource and capabilities are hard to detect in practice (Tsai et al., 2005) and also, the bulk of literature seems to focus on reasons for outsourcing, pros and cons of outsourcing, critical success factors and on which activities primarily are outsourced in certain industries (Tayles and Drury, 2001; Ettlie and Sethuraman 2002). On reviewing the literature it is evident that to achieve optimal performance levels outsourcing should be carried out from the strategic perspective and integrated in to the overall strategy of the organisation (Dekkers 2002; Philpott et al., 2004). Further more the literature identifies the gap in academic literature on strategic aspects of outsourcing for industrial companies and the criteria adopted by the engineers and management in the industry. In an age where management weighs the costs and benefits of investment, finding evidence of the decision making criteria for outsourcing is critical. As summarized in Figure1, by defining a manufacturing strategy, the systematic decision-making on outsourcing strategic, tactical and operational levels becomes possible. During all the stages of manufacturing process the decisions differ; during pre-design it concerns mostly subsystems or equipment and during later stages it turns to detailed production planning. During all these stages information is transformed according to specific requirements of the individual process hence, probability of distortion of this information during transformation remains high. In light of the significant impact outsourcing has on the overall performance (Dekkers 2000, Talluri and Narasimhan 2001; Gadde and Jonsson, 2007; Jennings 1997) of the organisation, the motivation for developing an integrated multi decision making criteria and a framework on different aspects of outsourcing incorporating the accurate transformation of information during different stages of these value creation activities and the criterion adapted by the engineers and management in the industry is evident.

REFERENCES
Alexander, M. and Young, D. (1996), Strategic Outsourcing, Long Range Planning, Vol.29, Number 1, pp. 116-119 Anderson, J. and Weitz, B. (1986), Make-or-buy decisions: Vertical integration and marketing productivity, Sloan Management Review, Spring, pp. 3-19 Arnold, U. (2000), New dimensions of outsourcing: a combination of transaction cost economics and the core competencies concept, European Journal of Purchasing & Supply Management, Vol. 6, pp. 23-29 Ashford, R. W., Dyson, R.G. and Hodges, S. D. (1992), The capital-investment appraisal of new technology: problems, misconceptions and research directions. Strategic Planning: Models and Analytical Techniques, John Wiley and Sons Ltd, Chichester Auguste, B.G., Hao, Y., Singer, M. and Wiegand, M. (2002, The other side of outsourcing,, The McKinsey Quarterly Vol. 1, pp. 5363. Baden-Fuller, C. and Hunt, B. (2000), Outsourcing to Outmanoeuvre: Outsourcing Re-Defines Competitive Strategy and Structure, European Management Journal, Vol. 18, Number 3, pp285-295 Barney, J. B. (1999), How a Firms Capabilities Affect Boundary Decisions, Sloan Management Review, Vol. 40, Number 3, pp.137-145 Baxter, L. F., Ritchie, J. M. and Seeto, H. H. (1996), Management and control in the virtual supply chain, In proceedings of the IEMC, Managing Virtual Enterprises, Vancouver, August 18-20, pp. 69-73 Beaumont, N. and Sohal, A. (2004), Outsourcing in Australia, International Journal of Operations & Production Management, Vol. 24, Number 7, pp. 688-700 Bock, S. (2008), Supporting offshoring and nearshoring decisions for mass customization manufacturing processes, European Journal of Operational Research, Vol. 184, pp. 490-508 Boer, L., Gaytan, F. and Arroyo, P. (2006), A satisficing model of outsourcing, Supply Chain Management: An International Journal, Vol. 11, Number 5, pp. 444 455 Brannemo, A. (2005), How does the industry work with sourcing decisions? Case study at two Swedish companies, Journal of Manufacturing Technology Management, Vol. 17, Number 5, pp. 547-560 Brown, S. (1998a), Manufacturing strategy, manufacturing seniority and plant performance in quality, International Journal of Operations and Productions Management, Vol. 18, Number 6, pp. 24-39 Brown, S. (2000), Manufacturing the future Strategic Resonance for Enlightened Manufacturing, Pearson Books, London Brown, S. and Bessant, J. (2003), The manufacturing strategy- capabilities links in mass customisation and agile manufacturing an exploratory study, International Journal of Operations and Production Management, Vol. 23, Number 7, pp. 707-730 Canez, L. E., Platts, K. W. and Probert, D. R. (2000), Developing a framework for make-or-buy decisions, International Journal of Operations and Productions Management, Vol. 20, Number 11, pp. 1313-1330 Chan, F. T.S., Kumar, V. and Tiwari, M. K. (2006), The relevance of outsourcing and leagile strategies in performance optimization of an integrated process planning and scheduling model, International Journal of Production Research, pp. 1-24 Dekkers, R. (2000), Decision models for outsourcing and core competencies in manufacturing, International Jourtnal of Production Research, Vol. 38, Number , pp. 4085-4096. Dekkers, R. (2002), Strategic capacity management: meeting technologies demands and performance criteria, Vol. 40, Number 15, pp. 3895-3911 Dekkers, R. (2006), Engineering management and the Order Entry Point, International Journal of Production Research, Vol. 88, Number 18-19, pp. 4011-4025 Dritna, R.E. (1994), The outsourcing decision, Management Accounting, Vol. 75, Number 9, pp.56-62 Earl, M.J. (1996), The risks of outsourcing IT, Sloan Management Review, Vol. 37, Number 3, pp. 26-32 Elfring, T. and Baven, G. (1994), Outsourcing technical services: Stages of development, Long Range Planning, Vol. 27, Number 5, pp. 42-51 Ellram, L. and BIllington, C. (2001), Purchasing Leverage Considerations in the Outsourcing Decision, European Journal of Purchasing and Supply Chain Management, Vol. 7, pp. 15-27 Erlandsson, A. and Yxkull, A. (1993), Product plans and their interaction with the development of the manufacturing system, In proceedings of the International Conference on Engineering Design, The Hague, August 17-19, pp. 580587 Ettlie, J. E. and Sethuraman, K. (2002), Locus of supply and global manufacturing, International Journal of Operations and Production Management, Vol. 22, NUmbder 3, pp. 349-370

Finlay, P. N. and King, R. M. (1999), IT sourcing: A Research Framework, International Journal of Technology Management, Vol. 17, Number 1, pp.109-128 Fogarty, D. W., Hoffman, T. R. and Stonebraker, P. W. (1989), Production and Operations Management, SouthWestern Publishing Co., Cincinnati Friedrich, S. A. (2000), Was ist Core und was ist Non-core?, International Operations Management, Number 4, pp. 18-23 Gadde, L. and Jonsson, P. (2007), Outsourcing and Supply Network Performance consequences of sourcing and producing in low-cost countries, Proceeding of the IMP conference 2007 Gillett, J. (1994), Viewpoint: The cost-benefit of outsourcing: assessing the true cost of your outsourcing strategy, European Journal of Purchasing and Supply Management, Vol. 1, Number 1, pp. 45-47 Haberberg, A. and Rieple, A. (2008), Strategic Management Theory and Application, Oxford University Press, Oxford Hamel, G. and Prahalad, C. (1989), Strategic Intent, Harvard Business Review, May-June, pp. 63-77 Hamel, G. and Prahalad, C.K. (1994), Competing for the Future, Harvard Business Press, Boston Harrison, A. and Hoek, R. V. (2008), Logistics Management and Strategy, Prentice Hall, London Hayes, D.C., Hunton, J.E. and Reck, J.L. (2000), Information Systems Outsourcing Announcements: Investigating the Impact on Market Value of Contract-Granting Firms, Journal of Information Systems, Vol. 14 Number 2, pp.109-126 Hayes, R. and Pissano, G. (1994), Beyond world-class: the new manufacturing strategy, Harvard Business Review, January-February, pp. 77-86 Hayes, R.H., Wheelwright, S.C. (1984), Restoring our Competitive Edge: Competing through Manufacturing, John Wiley & Sons, New York Heikkila. J. and Cordon, C. (2002), Outsourcing: a core or non-core strategic management decision?, Strategic Change Vol. 11, pp. 183-193 Howells, J. (1999), Research and Technology Outsourcing, Technology Analysis and Strategic Management, Vol. 11, Number 1, pp. 17-29 Jennings, D. (2002), Strategic sourcing: benefits, problems and a contextual model, Management Division, Vol.40, Number 1, pp.26-34 Jennings, J. D. (1997), Strategic guidelines for outsourcing decisions, The journal of Strategic Change, Vol. 6, pp. 85-96 Jiang, B. and Qureshi, A. (2006), Research on outsourcing results: current literature and future opportunities, Management Decision, Vol.44, Number 1, pp. 44-55 Johnson, G., Scholes, K. and Whittington, R. (2008), Exploring Corporate Strategy: Texts and Cases, Prentice Hall, London Johnson, M. (1997), Outsourcingin Brief, Butterworth, Heinemann, UK Julka, N., Baines, T., Tjahjono, B., Lendermann, P. and Vitanov, V. (2007), A review of multi-factor capacity expansion models for manufacturing plants: Searching for a holistic decision aid, International journal of Production Economics, Vol. 106, pp. 607-621 Ketler, k. and Walstrom, J. (1993), The outsourcing decision, International Journal of Information Management, Vol. 13, Number 6, pp.449-459 Klier, T. H. (1994), The impact of lean manufacturing on sourcing relationships, Economic Perspectives, Vol. 18 Kogut, B. and Zander, U. (1992), Knowledge of the firm, combinative capabilities, and the replication of technology, Organization Science, Vol. 3, pp. 383-397 Koszewska, M. (2004), Outsourcing as a modern management strategy. Prospects for its development in the protective clothing market, Autex Research Journal, Vol. 4, Number 4, pp. 228-231 Kotable, M. (1990), The relationship between offshore sourcing and innovativeness of Us multinational firms: An empirical investigation, Journal of Internal Business Studies, Vol. 3, pp 623-638 Kremic, T., Tukel, O. I. and Rom, W. O. (2006), Outsourcing decision support: a survey of benefits, risks, and decision factors, An International Journal of Supply Chain Management, Vol. 11, Number 6, pp. 467-482 Kriss, C.J. (1996), Appeal of outsourcing grows as competition intensifies, Bestss ReviewVol.97,. Number 5, pp.6973 Laudon, K.C. and Laudon, J.P. (1998), Management Information Systems - New Approaches to Organisation and Technology, Prentice-Hall, New Jersey. Levy, D. (2005), Offshoring in the new global political economy, Journal of Management Studies, Vol. 42, Number 3, pp. 685-693 Lonsdale, C., Cox, A. (1997), "Outsourcing: risks and rewards," Supply Management, No.July, pp.32-4. Malhotra, M. J., Steele, D. C. and Grover, V. (2001),Important Strategic and Tactical Manufacturing Issues in 1990s,Decision Sciences, Vol. 25, Number 2.

McIvor, R. (2000), A practical framework for understanding the outsourcing process, Supply Chain Management: An International Journal, Vol. 5, Number 1, pp. 22-36 McIvor, R. (2000), Strategic Outsourcing: Lessons from a Systems Integrator, Business Strategy Review, Vol. 11, Issue 3, pp. 41-50 Miltenburg, J. (1995), Manufacturing Strategy How to formulate and Implement a Winning Plan, Productivity Press, Portland, USA Mitra, S. (2007), India as the Global Outsourcing Destination: A Critical View of the Future, Global Business Review, Vol. 8, Number 69 Momme, J. (2001), Framework for Outsourcing: Based on Theoretical Review and Empirical Findings from Danish Heavy Industry, Proceedings of the Fourth SME International Conference, Aalborg, Denmark, 14-16 March Momme, J. (2002), Framework for outsourcing: strategic and operational implications, Computers in Industry, Vol.49, pp. 59-75 Momme, J. and Hvolby, H. H. (2002), An outsourcing framework: action research in the heavy industry sector, European Journal of Purchasing & Supply Management, Vol. 8, pp. 185-196 Murray, J. Y. and Kotabe, M. (1999), Sourcing strategies of U.S. service companies: a modified transaction-cost analysis, Strategic Management Journal, Vol. 20, pp. 791-809. Murray, J. Y., and Kotabe, M. (1999), Sourcing strategies of US Service Companies: A modified Transaction-Cost Analysis, Strategic Management Journal, Vol. 20, pp. 791-809 Murray, J. Y., Kotabe, M. and Wildt, A. R. (1995), Strategic and financial implications of global sourcing strategy: a contingency analaysis, Journal oif International Business Studies, Vol. 26, pp. 181-202 Nellore, R. and Soderquist, K. (2000), Strategic outsourcing through specifications, The International Journal of Management Science, Volume 28, pp.525-540 Olsen, R. F. and Ellram, L.M. (1997), A portfolio to supplier relationships, Industrial Marketing Management, Vol. 26, Number 2, pp. 101-113 Perunovic, Z. and Pederson, J. L. (2007), Outsourcing Process and Theories, Proceedings of the POMS 18th Annual Conference, Dallas, Texas, U.S.A., May 4 to May 7 Philpott, E., Hamblin, D.J., Baines, T.S., Kay, G. (2004), "The use of models and methods for strategic planning: an holistic view of strategy," International Transactions in Operations Research, Vol. 11, pp.203-16. Prahalad, C.K. and Hamel, G. (1990), The Core Competence of the Corporation, Harvard Business Review, Vol. 68, Number 3, pp. 79-91 Probert, D. and Shehabudden, N. (1999), Technology road mapping: the issues of managing technology change, International Journal of Technology Management, Vol. 17, Number 6, pp 646-661 Quelin, B. and Duhamel, F. (2003), Bringing Together Strategic Outsourcing and Corporate Strategy: Outsourcing Motives and Risks, European Management Journal, Vol. 21, Number 5, pp. 647-661 Quinn, J. B. and Hilmer, F. G. (1994), Strategic Outsourcing, Sloan Management Review, Vol. 35, Number 4, pp. 43-55 Quinn, J.B. (1992), Intelligent Enterprise: A Knowledge and Service Based Paradigm for Industry, Free Press, New York Quinn, J.B. (1999), Strategic outsourcing: leveraging knowledge capabilities, Sloan Management Review, Vol. 40, Number 4, pp.9-21 Rappaport, A. (1986), Creating Shareholder Value, Free Press, New York Razzaque, M.A.A. and Chen, S.C. (1998), Outsourcing of logistics functions: a literature survey, International journal of Physical Distribution and Logistics Management, Vol. 28, Number 2, pp. 89-107 Seeley, I., Smith, G. and Lanham, J. (2001), Issues Faced by SMEs Considering Overseas Manufacture, In proceedings of the Fourth SME International Conference, Aalborg, Denmark, 14 -16 Maj Selviaridia, K and Spring, M. (2007), Third party logistics: a literature review and research agenda, The International Journal of Logistics Management, Vol.18, Number 1, pp. 125-150 Sislian, E. and Satir, A. (2000), Strategic Sourcing: A Framework and a Case Study, The Journal of Supply Chain Management: A Global Review of Purchasing and Supply Talluri, S. and Narasimhan, R. (2004), A methodology for strategic sourcing, European Journal of Operational Research, Vol. 154, pp. 236-250 Talluri, S. and Narasimhan, R. (2004), A methodology for strategic sourcing, European Journal of Operational Research, Vol. 154, pp 236-250 Tayles, M. and Drury, C. (2001), Moving from Make/Buy to Strategic Sourcing: The Outsource Decision Process, Long Range Planning, Vol. 34, pp. 605-622

Tayles, M. and Drury, C. (2001), Moving from make/buy to strategic sourcing: The outsourcing decision process, Long Range Planning, VOl. 34, pp. 605-622 Teece, D. (1987), Capturing value from technological innovation: Integration, strategic partnering and licensing decision, National Academy Press, Washington Teece, D. J., PIsano, G. and Shuen, A. (1997), Dynamic capabilities and strategic management, Strategic Management Journal, Vol. 18, pp. 509-533 Venkatraman, N. (1989), Beyond outsourcing: Managing IT resource as a value centre, Sloan Management Review, Vol. 3, pp. 623-638 Walker, G. and Weber, D. (1984), A transaction cost approach to make or buy decisions, Science Quest Vol. 29, pp. 373-391 Wang, K.-J. and Chen, M.-J. (2008), Cooperative capacity planning and resource allocation by mutual outsourcing using ant algorithm in a decentralized supply chain, Expert Systems with Applications, doi:10.1016/j.eswa.2008.01.089 Welch, J. A. and Nayak, P. R. (1992), Strategic sourcing: a progressive approach to the make-or-buy decision, Academy of Management Executive, Vol. 6, number 1, pp. 23-31 Williamson, O. E. (1979), Transaction Cost Economics: The Governance of Contractual Relations," Journal of Law and Economics, Vol. 22, pp. 233-261 Wu, F., Chu, L.K., Li, H.Z., Han, X.M. and Sculli, D. (2003), The virtual organizing process- a critical tool for enterprise competitiveness in the in formation era, International Journal of Technology and Information Management, Vol. 12, Number 1, pp. 25-42 Wu, F., Li, H. Z., Chu, L. K. and Sculli, D. (2005), An outsourcing decision model for sustaining long-term performance, International Journal of Production Research, Vol. 43, Number 12, pp. 2513-2535