Integrating ABC and the theory of constraints to evaluate outsourcing decisions

doi:N/A

eISSN: 1848-137X / ISSN: None

Journal of Cost Management

Volume 12, Issue 1 : 24-36

Research Article

Integrating ABC and the theory of constraints to evaluate outsourcing decisions

Robert Kee

Univ of Alabama, Tuscaloosa, United States

Abstract

Outsourcing is a process for restructuring a firm's operations to create a more flexible, focused and competitive production structure. It involves differentiating between commodity components and those that are strategic to the firm's products. The objective of outsourcing is to enhance the company's competitive advantage and thereby, to improve it's financial performance. However, the risk involved in outsourcing must be identified and used to structure an outsource agreement that minimizes the risk. While the analysis of short and long run production costs takes time and effort to developed, their costs may be relatively insignificant, compared to the potential benefit of the information it provides for making more informed outsourcing decisions.

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