Outsourcing Direct Materials Procurement in an Outsourced Manufacturing Arrangement
ARIZONA STATE UNIV TEMPE
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In the current business environment, outsourcing is a common tool firms use to lower costs, attain access to technology, and to focus on core competencies. Procurement outsourcing is beginning to increase for nonstrategic or indirect purchases. However, outsourcing the procurement of direct materials occurs very infrequently. One exception to limited outsourcing of direct materials is the context of contract manufacturing. When outsourcing the manufacturing of a product or subassembly, original equipment manufacturers OEM enter a decision process to retain or outsource the procurement of direct materials for their contracted manufacturing activity. This study examined this phenomenon to determine how decision factors impact the level of procurement outsourcing. To firmly base this study on existing theory the frameworks of transaction cost economics and resource-based view were used to examine how the factors of procurement outsourcing impact the outsourcing decision. An internet survey methodology was implemented to collect data from purchasing managers in the electronics industry for theory building through hypothesis testing.
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