The application of failure mode and effect analysis to evaluate risks associated with outsourcing decisions

Abstract

The goal of this thesis is to develop a tool for analyzing the risks associated with outsourcing decisions for corporations. The thesis explores the current methods of choosing suppliers to outsource, as well as issues and risks that need to be considered in the decision. A need arose for a tool to standardize the process of choosing a supplier and help the decision team consider more aspects than the bid price. This need gave the opportunity to develop a tool based on Failure Mode and Effect Analysis (FMEA). The typical FMEA was researched and analyzed for its ability to be an effective tool in outsourcing risk decisions. Small alterations on the typical FMEA were made to provide a relevant tool to analyze outsourcing risks. This new process, deemed Outsourcing Risk FMEA, was described in detail. The Outsourcing Risk FMEA was put to the test through a case study. The case study analyzed Boeing Commercial Airline's 2003 decision to outsource a section of its 737 Vertical Fin production to Korea Aerospace Industries. This study provided an example of how the analysis could be applied. Further research into the proof of the analysis's effectiveness is necessary. This research can be conducted by receiving feedback from teams using this analysis in their outsourcing decisions. The feedback would then be used to improve the process. Outsourcing Risk FMEA provides a structured, standard solution to the problem of analyzing the risks associated with outsourcing. This thesis was performed in conjunction with Leaders for Manufacturing graduate student Victor Mroczkowski's MBA and MS thesis.