Global operations and their interaction with supply chain performance
| Pages | 1044-1064 |
| Date | 17 August 2012 |
| Published date | 17 August 2012 |
| DOI | https://doi.org/10.1108/02635571211255014 |
| Author | Jan Stentoft Arlbjørn,Teit Lüthje |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
Global operations and their
interaction with supply chain
performance
Jan Stentoft Arlbjørn and Teit Lu
¨thje
Department of Entrepreneurship and Relationship Management,
University of Southern Denmark, Kolding, Denmark
Abstract
Purpose – A major part of economic globalization has taken place in the form of different
globalization strategies. Offshoring and outsourcing of manufacturing activities from Western
locations to Eastern Europe and the Far East are used to remain competitive. Such strategies have
implications for supply chain performance. The purpose of this paper is to explore whether supply
chain performance is affected differently depending on the choice of globalization strategy.
Design/methodology/approach – Th e paper is based on in-depth literature re views and
explorative case studies – two offshoring and two outsourcing projects. A model explaining the
choice of localization and globalization strategy (the OLI model) is applied as a basic framework. Data
have been collected through in-depth interviews with persons responsible for the offshoring and
outsourcing projects.
Findings – The paper addresses different practices of managing supply chain performance in
offshoring and outsourcing strategies. The OLI model provides an increased consciousness of the
managerial challenges related to supply chain performance based on the chosen globalization strategy.
Research limitations/implications – The paper is explorative in nature and is based on four case
studies. The paper provides no basis for statistical generalizations.
Practical implications – The supply chain performance is affected both positively and negatively
in each type of globalization strategy. The OLI model provides an extended understanding of the
factors that should be considered in decision processes concerning offshoring and outsourcing.
Originality/value – In this paper, the OLI model is integrated in a new understanding of supply
chain performance.
Keywords Denmark,Supply chain management,Globalization,Outsourcing,Supply chain performance,
Offshoring, OLImodel, Managerial challenges
Paper type Research paper
1. Introduction
Relentless global competition forces many companies to evaluate how the global market
should be approached. The role of manufacturing has changed over the last decades due
to a globalized business environment in which products are made in one country and
then shipped across national borders and continents for further processing, packaging,
assembly, storage, and sale (Ferdows, 1997). Drivers to become more global vary and
include, for example, cost reduction, improving responsiveness, reducing cycle
times, and increasing quality and flexibility (Venkatraman, 2004; Jiang et al., 2006).
Decisions to locate international manufacturing plants is primarily based on reasons of
closeness to low-cost production, proximity to market, and local technological resources
(Ferdows, 1989). In order to respond to the increased global complexity, a company can
choose among different globalization strategies. Ferdows (2008) distinguishes between
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IMDS
112,7
1044
Received 27 December 2011
Revised 16 February 2012,
28 March 2012
Accepted 29 March 2012
Industrial Management & Data
Systems
Vol. 112 No. 7, 2012
pp. 1044-1064
qEmerald Group Publishing Limited
0263-5577
DOI 10.1108/02635571211255014
rooted and footloose production networks. A rooted network strategy means that a
company is focused on exploiting its own manufacturing facilities whereas a footloose
network strategy is based on leveraging the capabilities of others. Both rooted and
footloose network strategies can be spread out geographically in different ways, and
they are the result of two distinct globalization strategies – outsourcing and offshoring.
Outsourcing denotes a process whereby a company enables an external, independent
supplier to perform a specific task. This can include both domestic suppliers and
suppliers in foreign countries. Offshoring means that the company is restructured based
on geography (Contractor et al., 2010). Outsourcing and offshoring can be perceived as
competing business models strategies used to orchestrate the firm’s overall value chain
(Mudambi and Venzin, 2010).
The choice of globalization strategy can lead to both success and failure (Bin, 2003;
Aron and Singh, 2005; Kinkel and Maloca, 2009). Outsourcing and offshoring can, for
example, be mainly driven by cost reduction in order to reduce the cost of goods sold
(Jabbour, 2010). Getting access to pools of highly skilled talent around the world has
emerged as a new key strategic driver (Lewin et al., 2009; Manning et al., 2008). Other
factors, in addition to cost, must be included in the decision process of outsourcing or
offshoring because the decision can have a huge impact on the supply chain performance
in terms of, for example, longer lead-time, excess inventories, higher logistics costs and
quality (Handfield, 1994; Ritter and Sternfels, 2004; Lau and Zhang, 2006; Holweg et al.,
2011; Gray et al., 2011). In addition, the specific location chosen as the destination for
outsourcing and offshoring can impact the performance (Ha
¨to
¨nen, 2009; Kotabe and
Mol, 2009). Thus, the globalization strategy must be linked to corporate strategy and the
company’s competitive priorities (Takala et al., 2007). Kroes and Ghosh (2010) have
documented how the congruence between drivers of an outsourcing decision and a
company’s competitive priorities impacts supply chain performance (delivery cycle
time, manufacturing cycle time, missing/wrong products shipped, on-time delivery
performance, and warranty/returns processing costs). Furthermore, effective and
efficient functioning of supply chains or production networks does not depend only on
its cost efficient and robust design (Jaehne et al., 2009). The physical and informational
transactions in supply chains and networks also depend on decisions and actions of
people and groups which are embedded in organizations and in a particular region and,
therefore, also in a particular cultural context (Liao et al., 2011). Hence, it is insufficient to
only consider the hard factors of quality, time, and costs when designing and operating
supply chains and global production networks ( Jaehne et al., 2009; Holweg et al., 2011).
Extant literature on supply chain performance seems not to include a perspective on
the interaction between global allocation of production and supply chain performance.
In order to clarify the conditions that must be fulfilled before a company locates parts of
its production in other countries, this paper presents and discuss Dunning’s eclectic
paradigm or “OLI model” (Dunning and Lundan, 2008). The OLI model is a holistic
paradigm, that is, it is a summary of various theories which is specifically related to the
emergence of multinational corporations. Dunning’s eclectic paradigm has long been
the most influential framework for empirical investigation of determinants in
international production. One of the reasons for the enduring nature of the OLI model is
that it was never intended to be just another theory. It was intended to provide an overall
analytical framework for empirical investigations which would draw the attention of the
analyst to the most important theories for the problem at hand. Stock (1997) has
Global
operations
1045
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