To Insource or Outsource the Sourcing? A Behavioral Investigation of the Multi-Tier Sourcing Decision

After an outsourcing decision is made, a supply manager of the buying company still faces a multi-tier sourcing decision. Specifically, they must decide how much lower-tier sourcing responsibility to delegate to the tier-1 supplier. Traditionally, the multi-tier sourcing decision was not considered which meant a tier-1 supplier assumed full responsibility for both production and sourcing of parts and raw materials from lower-tier suppliers. Increasingly, however, while the tier-1 supplier oversees the production process, a supply manager may choose to retain the task of lower-tier sourcing. Our study investigates this critical, yet often overlooked decision facing supply managers. We use the literature on behavioral decisionmaking to develop a theoretical framework examining factors influencing a supply manager’s decision to retain control over sourcing in the multi-tier context. An experimental vignette methodology is used to gather data from 259 supply managers. Results suggest that supply managers choose to exert less multi-tier control when they have high levels of interpersonal trust in the tier-1 supplier’s sales representative. This effect is accentuated when the supply manager also has a high level of familiarity with potential lower-tier suppliers. We did not find support for the effect of behavioral uncertainty around the performance of the tier-1 supplier on the level of multi-tier sourcing control. However, under high levels of familiarity with potential lower-tier suppliers, a supply manager will exert greater levels of multi-tier sourcing control as the behavioral uncertainty of the tier-1 supplier increases. Our study contributes to the emerging literature on multi-tier sourcing surrounding behavioral tendencies of individual supply managers.