Simple subcontracting rules for make-to-order shops with limited subcontractor capacity: an assessment by simulation

Abstract

Companies that produce a high variety of customised products often suffer from large fluctuations in demand. Subcontracting can be an important means of overcoming resulting capacity shortages during high demand periods. A set of effective subcontracting rules, for determining which jobs to subcontract and which to produce internally, has recently been presented in the literature for this type of company. But evaluations of these rules have assumed subcontractor capacity is infinite. This study examines the impact of limited subcontractor capacity on the performance of the three best-performing subcontracting rules for make-to-order companies using a simulation model of an assembly job shop. Limiting subcontractor capacity inhibits the ability of a subcontracting rule to protect the internal shop from surges in demand, which negatively affects performance. However, significant performance differences between the rules evaluated are maintained, which underlines the importance of choosing the right subcontracting rule. Further analysis reveals that a limit on the work that can be subcontracted leads to less work being subcontracted more often, which requires adequate response by management. Meanwhile, the assumption of infinite capacity results in sporadically subcontracting a large amount of work. The results have important implications for future research and practice.

Keywords:

• subcontracting
• subcontractor capacity
• make-to-order
• assembly job shop

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This paper is partially supported by the National Natural Science Foundation of China [grant number 51475095], 2014 “Thousand-Hundred-Ten” High-level Talent Project of Department of Education of Guangdong Province, and the National Science and Technology Ministry of China [grant number 2012BAF12B10].