Global outsourcing decisions and ERP in a South African manufacturing environment.

Abstract

ABSTRACT Across the world manufacturing entities are increasingly faced with global pressures to assess strategy in order to retain competitive advantage. The focus of this study is to understand the production environment of a South African manufacturing entity, including the effect of costing methodology applied and to examine the factors influencing strategic global outsourcing decisions with the aim of assisting manufacturing entities in decision making and strategy formation within an enterprise resource planning (ERP) manufacturing environment. In order to address these issues in context, a case based approach is followed. Findings indicate that the analysis of costing data in an ERP environment is often compromised due to the cross-functional nature of the data and complexities involved when assessing production scenarios in order to understand implications around strategic decisions such as global outsourcing. Factors associated with people, systems and data inhibit the availability of suitably consolidated data for decision making. Undoubtedly the fundamental objective of global sourcing is to acquire products at lower cost or at least at a globally competitive level whilst retaining quality in order to significantly increase volumes sold. Expected benefits are often optimistic and although cost savings may be gained in the medium term, short term losses are a reality and the long term sustainability of the model is questioned. Additionally, for a company offering a premium product significant risks are associated with a globally extended supply chain, primarily loss of control, protection of intellectual property and ability to offer the market innovative products. Although risk mitigation procedures may be in place a single realised risk may leave a company in a defenceless position. In agreement with prior studies global outsourcing is more likely to cause positive effects if concurrent initiatives are taken to develop manufacturing capabilities and that outsourcing is mainly beneficial when used to free resources in order to invest in higher manufacturing capability.