The Assessment of the Production Outsourcing Strategy in the Wood Furniture Industry of the Uba Region (Brazil), through the Development of a Dynamic Model

Luciana Baldez De Almeida and Altair Dias de Moura

No 25459, 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia from International Association of Agricultural Economists

Abstract: The wood furniture industry of the Uba's region (Brazil) presents a high degree of vertical integration. Outsourcing is cited in the literature as a way of increasing a sector's competitiveness, through higher efficiency. Aiming to test this hypothesis, the research objective was to assess the process of deverticalisation in wood furniture production chains, through the identification of factors related to this process and their effects on the profitability of chosen firms in the Uba region. The research started with the development of a chain profile, through the use of a survey. This stage was followed by the development of a case study, in which the accumulated firm profitability was studied. System dynamics were the tool used in the case study. The firm's results showed that cost and quality were the two main aspects affecting the outsourcing decision. The increase of the firm's production capacity showed to be of secondary importance. When there were no differences in quality among strategies, higher levels of outsourcing showed better results than lower levels. However, if quality differs among strategies, either cost or quality became the important decision variable, depending on the characteristics of each firm studied. Considering that cost and quality are the main variables affecting the deverticalization process in the wood furniture production chains, special attention should be given to the establishment of efficient suppliers (low production costs and quality raw materials) in the chain. This fact may bring benefits to the firms and their chains in terms of profitability and competitiveness.

Keywords: Industrial; Organization (search for similar items in EconPapers)
Pages: 14
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:ags:iaae06:25459

DOI: 10.22004/ag.econ.25459

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