Trade-off between in-house production and outsourcing

Abstract

Division of labor has become very sophisticated. Business decision makers have come to the realization that outsourcing can effectively enhance market competitiveness and sustain the firm’s development. This study considers the trade-off between in-house production and outsourcing in a two-echelon supply chain. The objective is to optimize the total profit per unit time of the system. The deterministic model is developed. Numerical examples and sensitivity analysis are provided for illustration.

Keywords:

• Inventory control
• outsourcing
• in-house production
• opportunity cost

Acknowledgment

This study was partially supported by NSC 100-2218-E-263 -001 -, They wish to express their deep appreciation to the Ministry of Science and Technology, Taiwan, for the financial support.