Insourcing/Outsoucingâ€the Flexcon Piston Decision

Insourcing/Outsoucing—The FlexCon Piston Decision This case addresses many issues that affect insourcing/outsourcing decisions. A complex and important topic facing businesses today is whether to produce a component, assembly, or service internally (insourcing), or whether to purchase that same component, assembly, or service from an external supplier (outsourcing). Because of the important relationship between insourcing/outsourcing and competitiveness, organizations must consider many variables when considering an insourcing/outsourcing decision. This may include a detailed examination of a firm’s competency and costs, along with quality, delivery, technology, responsiveness, and continuous improvement requirements. Because of†¦show more content†¦Shorter cycle times, for example, encourage greater outsourcing with less vertical integration. The time to develop a production capability or capacity may exceed the window available to enter a new market. ââ€" ª Wall Street recognizes and rewards firms with higher ROI/ROA. Since insourcing usually requires an assumption of fixed assets (and increased human capital), financial pressures are causing managers to closely exam sourcing decisions. Avoidance of fixed costs and asset is motivating many firms to rely on supplier assets. ââ€" ª Improved computer simulation tools and forecasting software enable firms to perform insourcing/outsourcing comparisons with greater precision. These tools allow the user to perform sensitivity analysis (what-if analysis) that permits comparison of different sourcing possibilities. One topic that interested FlexCon managers was a discussion of how core competencies relate to outsourcing decisions. FlexCon management commonly accepted that a core competency was something the company was good at. This view, however, is not correct. A core competence refers to skills, processes, or resources that distinguish a company, are hard to duplicate, and make that firm unique compared to other firms. Core competencies begin to define a firms long run, strategic ability to build a dominant set of technologies and/or skills that enable it to adapt quickly to changing market