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Do not forget the strategic architecture of your manufacturing network while offshoring

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Offshoring manufacturing to low labour cost countries has become trendy. Nearly every day, one sees announcements in the business press of companies moving to China or India. Although production cost is an important consideration in choosing a location for the factory, we argue that one should not become victim of a herd effect, and that other parameters, e.g., quality, flexibility, transportation and energy costs, etc., need to be taken into consideration in the determination of the optimal manufacturing network. Relocating a factory is changing the strategic architecture of the company's manufacturing network, and requires a long-term view and a good model to design the architecture of the manufacturing network. Based on empirical survey research and a set of case studies, we provide such a model to prompt thought on the roles of factories in the strategic manufacturing network of the firm. However, we go beyond a classification and a descriptive model and provide a set of six managerial issues that require senior management's attention in determining the optimal manufacturing network and its dynamic evolution. We argue, for example, that senior management needs to: build a balanced portfolio of different types of factories; have a performance measurement system adapted to the type of factory, as well as the appropriate leadership for each of the different types of factories; and actively manage the dynamics and the flows of innovation in the factory network.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2006/2006-19.pdf

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Copyright INSEAD. All rights reserved