A closed loop outsourcing decision model for developing effective manufacturing strategy

Abstract

The case study deals with aligning production capacity for a US manufacturer of industrial thermal transfer bench-top printer, by exploring various insourcing and outsourcing options based on production, cost and delivery capabilities. A modelling framework is devised which aids in selecting an effective manufacturing strategy that considers key enablers and barriers to successful outsourcing. The proposed model is closed loop, which stresses regular re-evaluation of the existing outsourcing strategy. It models the total product cost for the product currently being manufactured in the US and compares the total costs if it were manufactured offshore in countries such as, Malaysia, China, Slovakia and Mexico. The analysis from the model shows moving manufacturing of the product to Mexico results in the largest business benefit of about $400 savings per unit compared to other countries studied. A closer look at China in the future could be considered as the economic, social and security risks may change enough to warrant re-evaluation of this option. To get a clearer picture of how Mexico rates against Malaysia in the existing state, these risks may be reviewed as an extra data point to finalise the decision to move manufacturing of industrial thermal transfer bench-top printers to Mexico.

Keywords:

• production economics
• global manufacturing
• manufacturing strategy
• cost analysis
• capacity planning
• outsourcing
• flexibility
• simulation
• contract manufacturing