Sourcing strategies – a literature review

The three latest Long-Term Defence Plans have increased the awareness towards collaboration between the Norwegian defence sector and the private sector. Meld. St. 17 (2020–2021) describes the latest national defence industrial strategy. It states that strategic partnerships with private actors should secure long-term supply and access to material resources, services and competence as well as enhance the defence sector’s ability to act in accordance with the principle «as civil as possible and as military as necessary». It further claims that the defence sector must utilise resources, competence, and economy of scale benefits in private markets, as this will enable the sector to focus on their core activities while commercial actors take care of tasks where they have their competitive advantage. Furthermore, several studies at FFI have also demonstrated that civilian suppliers are crucial when it comes to providing the much-needed support and supply that are demanded by armed forces’ operating in Norway. This study is a narrative literature review and concerns sourcing strategies, defined as the choice between in-house execution of activities, transactional outsourcing, or collaborative outsourcing. The study has three overreaching goals, namely (1) to contribute to increased knowledge and awareness concerning sourcing decisions for the Norwegian defence sector, (2) to propose a methodical approach for choosing suitable sourcing strategies, and (3) form a foundation for further research into sourcing strategies for the defence sector. The report consists of four main parts. The first part defines and explains certain terms and concepts related to supply and value chains with emphasis on sourcing strategies and the upstream part of the supply chain. Part two provides an overview of three theoretical perspectives on whether organisations should perform activities internally or outsource the task to external suppliers. Thirdly, the following part offers an outline of what distinguish short-term transactional buyer-supplier relationships from the strategic and collaborative buyer-supplier relationships. Finally, the last part of the report proposes an approach for choosing sourcing strategies based on a segmentation of the various activities within the Norwegian defence sector. It involves a segmentation of activities based on the activity’s strategic importance and the defence sector’s relative capability to perform the activity compared to the potential suppliers’ capability. We recommended further research into challenges and success factors for collaborative efforts between public and private actors as well as military and civilian actors. The former will likely lead to ethical and legal issues that this report does not fully address, especially when out-sourcing activities that are closely related to the core activities of military organisations. Further-more, we recommend that additional research should seek to develop a complete and holistic framework for choosing sourcing strategies for the Norwegian Armed Forces and the defence sector in general, for example by expanding the suggested approach in this report. Additionally, research should investigate the benefits buyer-supplier collaboration could yield beyond cost and performance benefits. For instance, how it could be a tool to mitigate carbon footprints and reduce climate impact. We also suggest that the defence sector establishes a reconciled terminology for labelling the various buyer-supplier relationships