Outsourcing and its Impact on Manufacturing Flexibility: Contingencies Matter

Despite the growing prevalence of outsourcing in manufacturing organizations, research examining how outsourcing impacts different types of flexibility is considerably lacking. This study seeks to advance our understanding of this relatively unexplored relationship by examining how outsourcing influences product, process, volume, and labor flexibilities. To achieve this goal, a mixed case study approach with eleven manufacturing companies that outsourced some portion of their product development or manufacturing activities is used. Our findings indicate that contingencies such as the speed of learning, the accuracy of transfer of learning, absorptive and desorptive capacities, and the distribution of power between the procuring and provider companies determine whether the effects of outsourcing on manufacturing flexibility are positive, negative, or if the type of flexibility is not affected at all. We find that process and product flexibility are impacted mainly positively by outsourcing, while the effects on volume and labor flexibility are ambiguous. A company that decides to outsource must therefore carefully analyze the possible consequences of outsourcing on different flexibility types and in relation to multiple contingencies.