Strategic and qualitative factors affect outsourcing decisions. For example, Soho’s managers may prefer to manufacture DVD players in-house to retain control over design, quality, reliability, and delivery schedules. Conversely, despite the cost advantages documented in Exhibit 12-6, Soho’s managers may prefer to outsource DVD players and focus on developing its expertise in digital media receivers. This is true in other industries such as advertising. For example, Wunderman Thompson focuses on the creative and planning aspects of advertising (their core competencies) and outsources production activities such as film and photographs.
Outsourcing is risky. As a company’s dependence on its suppliers increases, suppliers could increase prices and let quality and delivery performance slip. To minimize these risks, managers generally enter into long-run contracts specifying costs, quality, and delivery schedules with their suppliers. Wise managers go further and build close partnerships with suppliers. Toyota engineers, for example, help suppliers improve their processes. Companies such as Ford, Hyundai, Panasonic, and Sony partner with their suppliers to develop innovative products that they themselves could not have developed. Almost always, strategic and qualitative factors become important judgments in the outsourcing decision.