Global Sourcing Of Complex Production Process Analysis

The production process is more complex than the fulfillment and procurement processes. The production process includes all the steps necessary to make the finished goods from components that can be from inside or outside sources. The process can include assembling or manufacturing. Assembling is basically collecting components for outside sources to make up your product. On the other spectrum is manufacturing, where the company makes everything from scratch, from beginning to end. There are also ways to classify production, it can be discrete or process manufacturing. Then you have a company that uses a production process called made-to-stock, which means mass amounts of the product are made and housed until the product is ordered. The …show more content…
They developed a theory of a firm which decides on the complexity, the organization, and the global scale of its production process. They build on the approach of Antras and Helpman, who were the first to study global sourcing decisions under incomplete contracts. The model predicts that firms differ in the complexity of their production processes, both within and across industries. Also, firms may outsource some of their suppliers but vertically integrate others. Specifically from the formula the firm can get information to decide upon how thinly to slice its production process, if the supplier of different components is an external contractor or an integrated affiliate, and if that component is offshored to a foreign country. They first considered a scenario where the producer decides the mass of differentiated intermediate inputs that are simultaneously combined to a final product. Each of those inputs will be from a different supplier. This theory shows that firms tend to outsource low-skill products while keeping those high-skill inputs of the production process inside the business’s