Optimal manufacturing outsourcing decision based on the degree of manufacturing process standardization

In recent decades, manufacturing outsourcing has become a strategic trend in industry as manufacturing organizations desire to reduce costs and focus on core competencies. Organizations have a range of location options for outsourcing to select, such as, local, nearshore and offshore. Lower labor cost is considered as a dominant factor for many companies to choose outsourcing and foreign vendors in particular. However, higher transaction costs always are considers as one the most significant disadvantages of outsourcing especially in case of offshore and nearshore. Meanwhile, manufacturing process standardization, which is considered as a way to achieve, transparency and uniformity of manufacturing activities, resulting in reducing transaction costs. But up to now, there are a few studies of the impact of manufacturing process standardization on outsourcing decisions. So in this paper, we propose a framework including three factors, the degree of product or manufacturing process standardization, transaction costs and labor cost, to help the supply chain executives make optimal outsourcing location choice. Results show that, the higher the the degree of process standardization is, the further focal firms can outsource their production.