Backsourcing – a case study of a middle size manufacturing company taking an outsourced function back in-house

Abstract: For a long time, companies have been using outsourcing as main strategy to overcome obstacles and gain competitive advantage. The reasons for doing so are many, including the possibility of cutting cost, sharing risk and focusing on the core competences. However, current research shows that outsourcing has reached its limits and companies start considering alternative solutions and revising their sourcing strategy. Therefore, an upcoming trends is to backsource. This describes the process of taking previously outsourced functions back in-house. As outsourcing brings a loss of knowledge, the matter of backsourcing is not always an easy one and therefore, bringing various challenges, which need to be overcome.The decision for backsourcing is taken when the outsourcing strategy no longer provides the best solution for the company to gain competitive advantage. On the one hand, the outsourcing partner might not be able to deliver the desired quality of the products or services anymore; on the other hand, the company itself might discover new opportunities, which provide more profit. Important motivations for backsourcing include regaining control of the core business activities, dissatisfaction with the outsourcing company, merger and acquisition etc.There are many risks and challenges managers have to consider when deciding to backsource an activity. The challenges derive from both internal and external issues and may vary based on the characteristics of each company and the business environment. Moreover, being aware of critical success factors can enable a company to fasten the backsourcing project and bring it to an end more successfully.This thesis aims at increasing the understanding of motives, challenges and critical success factors for manufacturing companies when conducting a backsourcing project. Therefore, a middle-sized manufacturing company’s backsourcing project has been investigated. From this case study, we were able to derive essential factors by interviewing managers in the under-explored field of manufacturing companies’ backsourcing projects.The result of this study shows that the matter of backsourcing plays a major role in every company’s strategy. Motivations for backsourcing could be connected either to dissatisfaction, the opportunity to gain market share or the opportunity of acquiring a competitor. Being clear about these motives and evaluating them carefully is the first step of the process. By having a strong project team, the challenges can be handled and overcome. Moreover, identifying and knowing the critical success factors enables the company to allocate its resources and in this sense to bring the project successfully to an end.