Understanding the Effects of Outsourcing: Unpacking the Total Factor Productivity Variable
Production Planning & Control: The Management of Operations, 24:4-5, 308-317, 2013
Posted: 26 Oct 2014
Date Written: May 1, 2013
Research on why firms should outsource and how they should do it has proliferated in the past two decades, but few consistent findings have emerged concerning the benefits of outsourcing. We argue that this is in part due to the lack of an adequate framework for measuring the effects of outsourcing. To address this, we present such a framework based upon the Cobb-Douglas productivity function. We explain how our framework can be used to unpack one component of the Cobb-Douglas productivity function, the ‘total factor productivity,’ which represents the other numerous sub-variables that affect outsourcing productivity, beyond the capital and labour expenditures. We also demonstrate the framework using a simple illustrative example.
Keywords: outsourcing, Cobb–Douglas, total factor productivity, aerospace, manufacturing, Ishikawa diagram
JEL Classification: L10, L20, M10, M20, N10
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