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TITLE: Quality Risk in Outsourcing and Offshoring
SPEAKER: Aleda Roth
ABSTRACT:
The presentation addresses quality risks in outsourcing and offshoring. Recent media attention of product recalls suggests that these key supply decisions may have significant implications for manufacturing prowess and consumer opinions. However, many of the product recall reports are anecdotal; and it is unclear whether the cause of the observed increased quality risk is simply a natural result of the large number of products being outsourced or produced in offshore locations. Outsourcing and offshoring decisions may have been more complicated outcomes than originally envisioned. Their independent influences on quality risks are often confounded in the extant literature because it difficult to assess whether and to what extent the reported quality issues arose due to either inappropriate controls, which are associated with either the outsourcing of production, or different skills and coordinative challenges associated with the "offshore" location of production. Arguably, the distinction between the effects of organization and location on manufacturing outcomes is of substantial interest to supply management academics and practitioners. This presentation discusses two related empirical studies of manufacturing plants in the U.S. drug industry; and both use a new plantlevel measure of quality risk derived from Food and Drug Administration (FDA) inspection data as the dependent variable. In the first study, a theoretical model is tested on a sample of 154 FDA regulated domestic plants; and the results demonstrate that the outsourcing of production to contract manufacturers presents a significant quality risk to buying firms, which is moderated by plant age. The second study employs 33 pairs of plants in the mainland U.S. that are matched with counterparts in Puerto Rico, in order to evaluate relative onshore versus offshore quality risks. Further, we show that offshoring poses a quality risk that is qualitatively larger than that posed by outsourcing. The empirical results from the two studies offer insights quality risks associated with "pure" outsourcing and "pure" offshoring, respectively, that are useful for future research and practice.
