An investigation into the risk of outsourcing of knowledge rich, supplu critical elements within supply networks:a Sri Lnankan context

Abstract

Outsourcing of supply network elements have been increased by companies as a potential solution to aid increasing competitive advantage. Companies are more dependent on their service providers, if the majority of their product or service elements are outsourced. This typically increases supply risk profiles. Outsourcing of knowledge rich, supply critical elements in supply networks creates substantial impact on a companies’ network. Companies with high risk profiles can typically exhibit a knock on effect in revenue. It is essential for manufacturing companies to analyze the risks linked with outsourcing of knowledge rich, supply critical elements. This research study examines the probability of risk event occurrences associated with outsourcing of knowledge rich, supply critical elements on the long term sustainability of the network. A list of knowledge rich, supply critical elements in supply networks were determined to align to the industry study carried out. The methodology consists of the development of evaluating value at risk probabilities for listed supply network elements, through the formation of Bayesian networks and with use of basic probability concepts. Transferring of knowledge is determined as an uncertain process in outsourcing. Outsourcing of knowledge rich, supply critical elements was found to be limited within the Sri Lankan manufacturing sector. Probabilities of impact on monitory values relative to outsourcing in a company were investigated and it was determined that the impact on the long term sustainability of the network was substantial. The methodology directs manufacturers to make decisions on outsourcing of knowledge rich, supply critical elements and implement risk mitigation plans to maintain competitive advantage within their supply network.