A behavioral study of supply manager decision-making: Factors influencing make versus buy evaluation

• Published in: Journal of operations management 2006-12, Vol.24 (6), p.822-838
• Main Authors: Mantel, Susan Powell, Tatikonda, Mohan V., Liao, Ying
• Format: Article
• Language: English
• Subjects: Behavioral decision making; Decision making; Experiment; Managers; Outsourcing; Purchasing; Studies; Supply chain; Supply chain management; Supply risk
• ISSN: 0272-6963; 1873-1317
• DOI: 10.1016/j.jom.2005.09.007

This paper investigates behavioral factors influencing a supply manager's decision to insource or outsource the manufacture of a product component. To do so we posit a theoretical framework that integrates the heretofore distinct operational make–buy literature and the behavioral decision-making literature. Within the framework three factors influencing the make–buy decision are brought into account: the decision-maker's perception of supply risk or “strategic vulnerability”, the degree of core competency represented by the product component under consideration and the formality of the information about supply alternatives. The results of a controlled experimental survey show that: strategic vulnerability and core competency do influence the make–buy decision, strategic vulnerability has greater influence than core competency and information formality moderates the make–buy decision when the strategic vulnerability and core competency conditions are mixed. The practical implications of these results include the notion that management can ensure a more rational make–buy decision if they understand the biases that influence the decision and point these biases out to the decision maker.