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The effects of in-house manufacturing and outsourcing on companies' profits and productivity

Paper presented at 23rd International Annual EurOMA Conference, Trondheim, Norway, 17th-22nd June 2016
: Kinkel, Steffen; Jäger, Angela; Horvat, Djerdj; Rieder, Bernhard

2016, 10 pp.
European Operations Management Association (EurOMA International Annual Conference) <23, 2016, Trondheim>
Conference Paper
Fraunhofer ISI ()
make or buy; outsourcing; total factor productivity
Anfrage beim Institut / Available on request from the institute

This paper provides novel empirical evidence that the establishment and development of in-house value-adding activities pays off for manufacturing companies in several economic respects. In contrast to common belief and management practices, extensive out-sourcing of manufacturing activities has a strong negative impact on a firm's profit and total factor productivity (TFP). Mere cost-efficiency comparisons seem to be insufficient for appropriate make or buy decisions. Neglected factors like sub-par product variant and delivery flexibility capabilities of far-shore suppliers or internally disturbed competence formation and value creation processes are in many cases overcompensating the supposed cost benefits of outsourcing.