Dynamic outsourcing to contract manufacturers with different capabilities of reducing the supply cost

Dynamic outsourcing to contract manufacturers with different capabilities of reducing the supply cost

0.00 Avg rating0 Votes
Article ID: iaor20041513
Country: Netherlands
Volume: 86
Issue: 1
Start Page Number: 63
End Page Number: 80
Publication Date: Jan 2003
Journal: International Journal of Production Economics
Authors:
Keywords: control processes
Abstract:

Contract manufacturing is a supply chain arrangement. In this paper, we investigate a situation in which a manufacturing company outsources its assembly operations to two contract manufacturers, taking into account time (as a dynamic factor) and processing level (in terms of assembling) simultaneously. Each contract manufacturer is assumed to have a different level of improvement capability of inducing supply cost reduction that, in turn, benefits the manufacturing company. Two types of contract manufacturer are considered: (i) one which offers a cheaper current price for its supply, but having little improvement capability and thus little potential for future supply cost reduction; (ii) the other, although offering a higher price, possesses a higher improvement capability. The decision problem faced by the manufacturing company is twofold: over time, (a) how much should be outsourced to each contract manufacturer (i.e., less capable or more capable); and (b) how processed (in terms of assembling) should the semi-finished units be when returned from the contract manufacturers. An optimal control model helps us develop a set of mathematical results, which can solve the decision problem. Numerical examples are also employed to demonstrate how the analysis can be utilized in a real-world setting.

Reviews

Required fields are marked *. Your email address will not be published.