Article ID: | iaor20104191 |
Volume: | 12 |
Issue: | 2 |
Start Page Number: | 236 |
End Page Number: | 255 |
Publication Date: | Mar 2010 |
Journal: | Manufacturing & Service Operations Management |
Authors: | Aydinliyim Tolga, Vairaktarakis George L |
Keywords: | outsourcing |
A set of manufacturers outsources certain operations to a single third party following the announcement of a booking price for each available day of production. Knowing these costs, manufacturers book available production days in a first-come-first-serve order to optimize their individual cost. The cost for each manufacturer consists of booking and work-in-progress costs, as expressed by the weighted flow time. When window booking is completed, the third party identifies a schedule that minimizes the total cost incurred by all manufacturers. This coordination reduces the total cost but may result in higher costs for a subset of manufacturers. For this reason, the third party devises a savings sharing scheme with which the monetary benefit for each manufacturer is greater. In this article we present algorithms for the problem considered, as well as savings-sharing schemes that make coordination a better alternative for all parties. The highlight of our experiments is that the costs of the production chain can be reduced by an average of 32% if one-third of the members let the third party cover their increased work-in-progress cost in exchange for 38%–53% of the total savings.