Outsourcing the procurement function: Do actions and results align with theory?

• Published in: Journal of purchasing and supply management 2014-09, Vol.20 (3), p.186-194
• Main Authors: Brewer, Barry, Wallin, Cynthia, Ashenbaum, Bryan
• Format: Article
• Language: English
• Subjects: Decision analysis; Make or buy; OEM; Outsourcing; Procurement; Purchasing; Resource-based view; Sourcing; Studies; Supply chain management; Transaction costs; Transaction-cost economics
• ISSN: 1478-4092; 1873-6505
• DOI: 10.1016/j.pursup.2014.02.004

Are common theories of outsourcing useful in predicting the extent of and performance gains from the outsourcing of procurement activities? Or does procurement׳s broad scope and boundary-spanning role confound successful analysis? This study applies a theoretical framework combining concepts from transaction-cost economics (TCE) and the resource-based view (RBV) to study the procurement outsourcing decisions of two hundred and eighty US-based electronics manufacturing firms. Findings suggest that TCE and RBV act in complementary ways on the procurement outsourcing decision. TCE, through fear of supplier opportunism, appears to be the primary driver of the extent to which procurement activities are outsourced. The RBV, through which the OEM׳s resource position in procurement vis-à-vis its outsourcing partner is determined, appears to be the primary determinant of the performance results of the outsourcing decision. Procurement activities are outsourced to a greater extent when fear of supplier opportunism is low, but such outsourcing is only “justified” (expected to yield performance benefits) when the OEM has a weak resource position vis-à-vis the outsourcing partner. An “enriched” TCE–RBV framework is presented and discussed as part of study results. •Outsourcing; make or buy; procurement, purchasing; sourcing; supply chain management; transaction-cost economics, resource-based view.•We survey US-based electronics firms using contract manufacturers.•We examine their decision to outsource or retain procurement.•Low opportunism fear appears to drive higher levels of procurement outsourcing.•Weak resource positions appear necessary to yield performance benefits.