Running Head: To Make or Buy
Liberty University
Busi 613
Professor: Quigg
September 04, 2016
TO MAKE OR BUY 1
Hayashi, A. M. (2008). The make-or-buy question in mature industries.
MIT Sloan Management Review, 49(3), 5–6.
Author’s purpose: To illustrate that outsourcing is a mature decision for companies in the
automotive or shoe industry, instead of manufacturing the entire product and remaining, for the
most part, autonomous.
With an increasing intelligent consumer population, the issue of outsourcing overseas in
certain industries such as the automobile industry or the shoe industry is no longer in regards to
sales forecasts. In the past, managers used to heavily rely on forecasting trends based on
historical performance. In today’s dynamic and fast-changing markets, this is no longer the case.
Although, Hayashi argues the opposite, his views are that ever since the early 1990’s America
has been shifting jobs overseas (Hayashi, 2008).
Mr. Hayashi argues that “on the supply side, manufacturing has been shifting away from
developed regions, such as the United States and southern Europe, and toward
emerging economies, including China, India and Eastern Europe” (2008). However, certain
companies in the United States are challenging Mr. Hayashi’s view and are making a comeback,
for example, this theoretical model relates to the textbook in the sense that outsourcing for GM
proved ineffective (Young, p. 43).
In regards to the shoe industry, Mr. Hayashi argues that lately, people have been thinking
of shoes “as a lifestyle purchase instead of a basic item of consumption” (Hayashi, 2008).
Although this may be true, especially in regards to women. It is also true that companies like
Nike are also moving away from supply chain systems that are inefficient and only aid a
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company in the accumulation of inventory, which is obviously costly. Nike started making
changes in 2012 towards utilizing a more integrated supply chain approach.
Actually, for companies like Nike, which began outsourcing ever since the 1970’s, this
approach proved worthy only for a limited time. The company had to dramatically change its
supply chain system in order to stay in business, the cost of inventory was just too high. In
regards to the supply chain management system used by Nike or by companies in the automotive
industry, this will vary not only by industry but also within an industry depending on the size of
the organization. Nike utilizes enterprise resource planning (Arora and Aggarwal, 2012).
Nike executives had to train to be able to use the new ERP system established. The new
system integrated the functions of general, managerial accounting, sales trends along with other
functions of the business. From this information, managers and subordinates were able to make
better-informed decisions, at the same time, reduce inventory on hand, which allowed Nike to
save substantially in inventory cost while improving on its early business model. (Young, p. 11;
Arora and Aggarwal, 2012). As opposed to Hayashi’s view on outsourcing, Nike seems to be
slowly coming back to life in America.
Managerial Implications Section
Nike managers should continue to implement supply chain management systems that
allow the company to remove excessive inventory on hand. This advice will not go as far as to
say that maybe Nike should be the only company selling its own shoes since there are many
retailers also profiting. However, this may have been a great idea when the company first started,
but just the opposite occurred, the company started outsourcing right away in the early 1970’s.
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Even though Nike sells to mostly all retail stores, the truth of the matter is that once that
inventory leaves the warehouse, it is no longer Nike’s responsibility but that of the retailers.
Therefore, Nike’s business model is successful and sophisticated. In addition, Nike also has an
advantage, since the company sells their own sneakers on their website, they can track important
sales information that can help them be even more successful.
Advice to managers would be to utilize their sales trends from the sneakers sold on their
website in order to integrate that information to the marketing and sales department. In term, the
marketing and sales managers should use the sales information they obtain to better sell their
sneakers to retail. Lastly, since retailers buy in bulk quantity, the information obtained from
sneakers first sold on Nike’s website would allow for better sales and stronger relationship
building among retailers around the world.
Hayashi also mentions that in order to better comprehend if it is wise for companies to
the manufacturer or outsource some aspect of their business, three Portuguese shoe
manufacturing companies were studied: Basilius, J. Sampaio & Irmão, and Investvar. Hayashi
argues that Basilius started strong, but after a decade did not change the business model and
compared to Sampaio & & Irmão, and Investvar, Basilius did not sell as well as the latter did
(Hayashi, 2008).
Hayashi may not be entirely accurate in his study given that Investvar was the shoe
manufacturer for the American brand, Aerogroup. Investvar was the largest exporter of shoes for
more than two decades, not just for AeroGroup, but for other brand’s as well. However,
outsourcing to America ended in the year 2010 for Investvar shoes. The reason why the judgment
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of Hayashi is questionable is due to the fact that all three companies are still in business in
Portugal (Fernandes, 2012).
Hayashi argues in favor of contemporary supply chain management models. However,
Hayashi foresees the reasons why a business may operate in the first place. Basilius may be
perceived to be a retrenching company. However, it is still in operation just like J. Sampaio &
Irmão, and Investvar. However, most of the time, value is more important than money, even in
the midst of an outsourcing fever (Hayashi, 2008).
Hayashi also argues that opportunity or flexibility, porousness, and modularity are the
combinations in a supply chain model that make a business successful. It is without question that
J. Sampaio & Irmão may have been also successful when it implemented a similar approach and
outsourced to a retail chain. However, all of these niche trends for the most part usually prove to
be seasonal, particularly in the fashion industry (Hayashi, 2008).
Hayashi also argued that in the automotive industry supply chain is necessary. However as
previously stated GM doesn’t think so. In fact, “General Motors’ supply network can’t literally
compete against Daimler-Chrysler’s because the two companies share the same suppliers” (Rice
and Hoppe, 2001). GM is seriously reforming the company; it wants to have a customized
system. In this form of the supply chain, the customer would order on demand. (Young, p. 43-
44).
Managerial Implications for GM
Advice to managers is to implement a state of art inventory system that uses just-in-time
management. To manufacture the cars at home and to learn from successful companies that
modulate this system, for example, Harley Davidson. GM has been in a lot of turmoil in the past,
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and the fact that companies that outsource run the risk of finding companies that share suppliers
are probably not the smartest idea.
It is not hard to imagine that if several companies share suppliers, whether in the car
industry or the shoe industry. Somehow information can be leaked of exclusive designs for one
company. Next thing would probably be that a competitor may imitate your product. Hence,
advice to managers would be to not rely so much on outsourcing but instead of creating value at
home.
Another piece of advice to managers is that if potential customers from around the world
are interested in the companies product is that they can purchase directly from the company’s
website. The internet allows the possibility to purchase from other places in the world directly.
Customers do not necessarily have to purchase locally, for example, if GM can sell to a dealer,
they can also sell to a customer for the same usual lower price, which would be better for both.
Summary
Even though there are many developments in the field of supply chain management with
the progress of technology, a pull-based supply chain approach, in which every aspect of demand
is instantaneously coordinated with production and distribution. Based on immediate customer
purchases and not past performance forecasted demand. In regards to the shoe, industry and the
car industry, pull-based is the best option. In addition, technological advances in supply chain
management do not necessarily only involve outsourcing. Quite the contrary, even though there
are inventory systems that can track a product that was purchased by a customer in some remote
location of Idaho. The fact of the matter is, that even if this inventory system can replenish the
sold inventory from China instantly and efficiently. In the long-run outsourcing doesn’t always
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work. Just as likely, advanced inventory systems, like six-sigma can work to eliminate defects
locally. This same trend of thought can be applied to the automotive industry and the shoe
industry.
Reference
Arora, R., & Aggarwal, G. (2012). Operations Management at Nike:
From breakdown to achievement.
International Journal of Management Research and Reviews, 2(7), 1293-1300. Retrieved
from http://ezproxy.liberty.edu:2048/login?
url=http://search.proquest.com/docview/1417477847?accountid=12085
Fernandes, B. (2012, March 13). I bought myself a pair of purple shoes.
Retrieved from http://aportugueselove.blogspot.com/2012/03/i-bought-myself-pair-of-
purple-shoes.html
Forslund, H. (2010). ERP systems' capabilities for
supply chain performance management. Industrial Management & Data Systems, 110(3),
351-367. doi:http://dx.doi.org/10.1108/02635571011030024
Hayashi, A. M. (2008). The make-or-buy question in mature industries.
MIT Sloan Management Review, 49(3), 5-6. Retrieved from
http://ezproxy.liberty.edu:2048/login?
url=http://search.proquest.com/docview/224958578?accountid=12085
Rice, J., & Hoppe, R. (2001). Supply Chain Vs. Supply Chain:
The Hype and the Reality. Retrieved from
http://web.mit.edu/supplychain/repository/scvssc.pdf
Young, G. (2014). Supply chain management (Custom.). New York, NY: McGraw-
