Influence of Modularity on Outsourcing: Insights from Structural Equation Modeling

Modularity, a crucial factor in outsourcing decisions, comprises product modularity (modular design and component interchangeability) and process modularity (segmentation and reintegration of production processes). This research empirically investigates the relationship between these facets of modularity and their impact on outsourcing practices. A survey of 5,498 vice presidents, directors, and managers in manufacturing, supply chain management, operations, materials and purchasing, and logistics resulted in 714 click-throughs and 294 usable responses, yielding a 41.18% response rate. The results were analyzed using structural equation modeling (SEM). Our findings indicate that product modularity significantly facilitates outsourcing, demonstrating a positive relationship. However, the association between process modularity and outsourcing was not statistically significant. While no direct relationship was found between process modularity and outsourcing, the analysis suggests it may impact outsourcing indirectly through factors like postponement and mass customization. Further research is needed to develop a comprehensive outsourcing model in this context.