Do not forget the strategic architecture of your manufacturing network while offshoring

Abstract

Offshoring manufacturing to low labor cost countries has become trendy. Nearly everyday one sees an announcement in the business press of companies moving to China or India. Whilst production cost is an important consideration in choosing a location for the factory, we argue that one should not become victim of a herd effect and that other parameters e.g. quality, flexibility, transportation and energy costs, etc. need to be taken into consideration in the determination of the optimal manufacturing network. Relocating a factory is changing the strategic architecture of the company's manufacturing network and requires a long term view and a good model to design the architecture of the manufacturing network. Based on empirical survey research and a set of case studies we provide such a model to think about the roles of factories in the strategic manufacturing network of the firm. But we go beyond a classification and a descriptive model and we provide a set of six managerial issues that require senior management's attention in determining the optimal manufacturing network and its dynamic evolution. We argue for example that senior management needs to build a balanced portfolio of different types of factories, has to have a performance measurement system adapted to the type of factory, as well as the appropriate leadership for each of the different types of factories and needs to actively manage the dynamics and the flows of innovation in the factory network. Key words: international manufacturing, network management, outsourcing