Manufacturing futures: an empirical study of outsourcing in the automobile industry

Abstract

Outsourcing is becoming an important element in world-class manufacturing. It is defined as the process of identifying long-term reliable sources capable of supporting multiple value addition partnerships activities like product design, development and supply (McGrath and Bequillard, 1989). An important, yet relatively unexplored, issue in this area is understanding assemblers' requirements of suppliers' capabilities and the development of corresponding manufacturing capabilities in the supplier units. This constitutes the focus of the present study. The research is based on a dyad approach involving automobile assemblers and their first-tier component suppliers. It investigates the supplier evaluation process in assembler and the linkages among manufacturing priority, programmes and performance indicators in supplier units. Manufacturing priority is defined as a "consistent set of goals for manufacturing" (Leong et al, 1990); its principal dimensions are quality, flexibility, delivery, cost and innovation.

The research questions are:

1. What are the criteria used in supplier evaluation? How do these relate to manufacturing priority dimensions? 2. What are the issues considered in deciding manufacturing priority, manufacturing programmes and manufacturing performance indicators? 3. What are the linkages between manufacturing priority and manufacturing programmes? 4. How do the linkages among the constructs relate to manufacturing performance? 5. What are the indicators of manufacturing competence?

While the first question involved analyses from the assemblers' perspective, the subsequent research questions were explored for the supplier units. The study involved a comparative analysis of the issues in the context of automobile industries in France and India. The research approaches adopted include multiple case studies and survey.

The principal observations from the study are:

i) The French assemblers initiate the evaluation process early at the product development stage and involve suppliers through product design, development and commercialisation phases. The interactions are rigorous in terms of assistance in capability upgradation and training of personnel. In contrast, the lndian assemblers evaluate and engage suppliers exclusively for manufacture of parts designed by the assembler units themselves.

(ii) All the five dimensions of Manufacturing Priority are emphasised by assemblers in the supplier evaluation process.

(iii) The issues considered by component manufacturing units in deciding manufacturing priority, programmes and performance indicators are very different for the two countries. The French industry focus extensively on integration of the supply chain as well as involvement and empowerment of manufacturing personnel as compared to the Indian industry. (iv) Manufacturing programmes emphasized by "high" and "low" performing companies are not significantly different. (v) The correlation between manufacturing priority and manufacturing performance indicator fail to explain differences in manufacturing performance of companies. (vi) Differences in manufacturing performance can be explained through a dynamic theory of manufacturing capability building involving the five dimensions of manufacturing priority. The main contributions of the study are in terms of proposed framework grounded on empirical data and the methodological approaches used. It also identifies possible improvement areas, in terms of manufacturing capabilities, for Indian auto-component manufacturers from a comparative analysis of the industry in France and India. The principal limitations of the study include its restricted industry (and tier) focus and respondent sample base.