Performance measures and metrics in outsourcing decisions: A review for research and applications

Abstract

Outsourcing, an operations strategy that influences the performance of a supply chain, has become an important component of global operations management. An effective global sourcing strategy helps companies to manage the flow of parts and finished products in meeting the needs of overseas and domestic markets. Outsourcing reduces the cost of assets, facilitates core competencies to reduce production costs, leads to strategic flexibility and reduces administrative and overhead costs. Some of the reasons why companies are against outsourcing include integration challenges, sacrificing their competitive base, opportunistic behaviour, rising transaction and coordination costs, limited innovation, and higher procurement costs. Despite these shortcomings, outsourcing will continue to play an important role in enhancing organizational competitiveness. Therefore, an attempt has been made to review the literature on outsourcing with particular reference to Performance Measures and Metrics (PMMs) used in arriving at outsourcing decisions. The main objective of this paper is to present a taxonomy (classification) of PMMs in outsourcing decisions at the pre-outsourcing, during-outsourcing, and post-outsourcing stages. Also, based on the literature review and analysis, an attempt is made to determine a list of specific tools and techniques for PMMs in outsourcing. Finally, the limitations of the paper and future research directions are presented.