Supplier selection for outsourcing from the perspective of protecting crucial product knowledge

This paper considers the supplier selection problem in terms of the characteristics of the products/processes to be outsourced. Emphasis is placed on the possible risk that may arise in sharing or transferring crucial product/process knowledge to suppliers during outsourcing. Two indices are employed to assess the suitability of a supplier for outsourcing a product/process. The first measures the supplier's capability for technological innovation in the products for which they offer outsourcing services, and includes investment in R&D projects and the ratio of R&D personnel to the total work force. The second index measures the supplier's practices in protecting its clients’ intellectual property rights, and includes corporate image, track record in protecting clients’ intellectual property rights, and compliance with internal and external requirements. These two indices are then used to classify suppliers into four major groups, which are in turn assigned to classes of components/processes depending on their strategic importance and vulnerability – a portfolio approach. The proposed portfolio approach has been validated via a substantial empirical study involving data for 401 parts, 216 suppliers, and 36 manufacturing companies operating in China.     

Implementing of a three-phase integrated decision support model for parts machining outsourcing

Parts machining outsourcing (PMO) can be regarded as a strategic weapon to increase product quality and productivity as well as cost cutting in many manufacturing enterprises. However, making an outsourcing decision based on accumulated experience is neither effective nor scientific due to subjective judgement and lack of systematic analysis. Therefore, to systematically help the decision-maker survey and select suppliers to outsource and also to timely achieve the most beneficial portfolio among suppliers in a non-cooperative game structure, this paper proposes an integrated decision support model for PMO using ontology, constraint-based reasoning, fuzzy VIKOR and game theory in three phases, namely supplier prequalification, ultimate selection and order coordination. In the decision-making process, decision factors such as quality, cost and production capability are categorised and put into different phases, respectively, by their characteristics for being measured at a more reasonable method. Finally, a case from a leading printing machinery enterprise is analysed to validate the proposed model. This research is expected to improve the quality and effectiveness of decision-making in PMO.     

Pre-positioning inventory and service outsourcing of relief material supply chain

Service outsourcing is very common in a commercial supply chain, and in humanitarian relief area, the transportation service is usually outsourced. To practice relief supply more effectively, it seems essential to enlarge outsourcing from shipping to more areas, and private enterprises could play a vital role. This paper examines the optimal pre-disaster order quantity of a certain relief commodity, based on a two-stage coordinated approach. Our findings show that the delay cost, shortage penalty cost, risk of supply shortage, salvage value, expected perishable rate, unit inventory cost and reactive price have significant impacts on the optimal amount of propositioned inventory. Moreover, the outsourcing strategies differ by types of relief commodities. For perishable supplies, proactive or reactive outsourcing would improve the benefits of buyer and supplier simultaneously. As for imperishable supplies, it is better to combine proactive insourcing approach and reactive outsourcing strategy. In view of some supplies whose monitoring cost is high, the insourcing approach is much better than the outsourcing approach.     

Strategic outsourcing for competing OEMs that face cost reduction opportunities

This paper explores production and outsourcing decisions for two Original Equipment Manufacturers (OEMs) who produce partially substitutable products and have opportunities to invest in reducing the manufacturing cost. In such an environment, competition drives both OEMs to set lower prices and invest more than would maximize their combined profits, particularly when product substitutability is high. However, outsourcing provides a mechanism by which the two OEMs can credibly signal that they will not overinvest in cost reduction, mitigating a mutually destructive cost competition. Our paper explores the role that an external supplier(s) can play in dampening competition between the OEMs when there are opportunities to invest in cost reduction. In particular, we characterize the conditions under which a supplier can profitably enter the market by inducing the OEMs to outsource production. We first examine a basic model of two identical OEMs in which there is a single common supplier and a single component that is a candidate for outsourcing. Later, we extend the basic model to allow for market asymmetry, two suppliers, and more than one component that might be outsourced.     

Development and evaluation of the interactive bidding strategies for a demander and its suppliers in supplier selection auction market

Supplier selection strategy is a critical issue in a supply chain management (SCM) system. Selecting the correct suppliers can have a significant impact on the competitiveness of firms. This research is concerned with the development of the interactive bidding strategies for a demander and its multiple suppliers in a supplier selection auction market (SSAM). The objective of this paper is to investigate the negotiation efficiency for the various bidding strategies the demander employed in different order conditions. The negotiation efficiency is assumed as the required negotiation times to achieve an agreement, agreed price and the procurement costs. Further, this paper runs the experiments of SSAM and provides a bidding strategy guideline for a demander to achieve its goals of supplier selection in varying order conditions. To this end, the negotiation efficiency of this proposed bidding strategy model is compared with other research.     

An outsourcing decision model for sustaining long-term performance

Outsourcing is a strategically important activity that enables an enterprise to achieve both short and long term benefits. An important but less well researched issue concerns outsourcing in relation to the long-term performance of an enterprise. This paper addresses this issue from the point of view of the protection of core competencies during outsourcing and by considering the trade-off necessary when certain amounts of knowledge transfer/sharing is inevitable. Two major outsourcing decision variables have been identified and quantified—the significance of the component/process technology involved and the risk of disclosing this technology to suppliers. Nine scenarios are generated by considering each of the two variables at three levels of severity: high, medium and low. Each scenario is explored in terms of the appropriate outsourcing approach, the appropriate management of the core competencies/knowledge, and the selection of suppliers. The validity of the outsourcing decision model is established using four products with 861 components from four manufacturing companies based in China.     

A neural feature extraction model for classification of firms and prediction of outsourcing success: advantage of using relational sources of information for new suppliers

Clustering is a family of classification techniques, often preceding further analysis or application in a number of fields like data analysis, strategy selection, supplier selection, etc. Data based neural techniques are gaining popularity in clustering applications due to flexibility and adaptability. Kohonen’s Self Organizing Map (SOM) is often used when the objects to be clustered have many attributes. In both supervised and un-supervised modes, Kohonen’s map exhibit good capability to extract a classification which assigns highest weight to the most important attribute. In this paper, we have applied SOM for classification of firms based on their sources of information for new suppliers/customers. Additional data regarding the outsourcing success of the firms’ is added to see if there is an association between a particular set of information sources and the probability of firms’ success to outsource to partner firms. Using data from World Bank BEEPS survey of German industries, we could produce three distinct clusters of industries. When successful outsourcing data were included, it still showed three clusters. The hits were obtained using specific support vector for identification of clusters. We found evidence of associations between relational sources and firms’ ability to outsource successfully.     

Modelling joint outsourcing and offshoring decisions

Offshoring and outsourcing have emerged as two most essential and important strategies for the manufacturing firms globally. This has happened due to the relentless forces of competition and globalisation, which has forced modern manufacturing firms to disaggregate themselves and reach for foreign investments, technological inputs through collaboration and cooperation among markets and partners. Outsourcing and offshoring simultaneously has potential to help the firm to meet three strategic goals i.e. ‘efficiency’ through cost minimisation; ‘exploration’ through an access to the right and technologically capable firm vendors/ Suppliers/ players; and ‘exploitation’ from development of global markets. Both outsourcing and offshoring have grown to a great extent either by the number of companies involved or by the number of multiple nations are involved. Hence, addressing both offshoring and outsourcing strategies together can provides value to the supply chain in economical and efficient way. Therefore, this paper is an attempt to model joint outsourcing and offshoring decision integrated with fuzzy-MCDM approaches using fuzzy data to optimise total cost through right selection of suppliers to meet demand of global markets, thus, achieving efficiency, exploration and exploitation. The model addresses qualitative and quantitative criteria in joint decisions and is also illustrated to show the cost effectiveness.     

Risk management framework for outsourcing in the defence sector: a case from India

A nation automatically becomes strong if it has self-sufficiency to fulfil its defence requirements. India is moving in the direction to attain self-reliance in the defence sector. The aim of this paper is to analyse the critical issues faced in outsourcing by an organisation in Indian Defence Sector and extend easy, quick, complete and practically implementable risk mitigation strategies for enabling better decision-making. In this research, a list of 20 risk criteria is finalised on the basis of the literature survey and expert’s opinion. Analysis in this research shows that, three criteria which can seriously affect the outsourcing are Material shortage risk, Quality Risk and On-time delivery risk. The paper employs an integrated framework which includes ‘Grey Theory, Failure Mode and Effect Analysis (FMEA) and Risk Management Matrices’ for a comprehensive risk management in the defence sector. The paper delivers a 10-point risk management action plan to counter the various problems faced during outsourcing in the defence sector, especially in the Indian context. In brief, this paper investigates the various important issues related to outsourcing, which are faced by organisations working in Indian Defence Sector and extends a practically implementable methodology to derive a practically amicable solution for the case organisation.     

Antecedents and Outcomes of Supplier Innovativeness in International Customer–Supplier Relationships: The Role of Knowledge Distance

The increasing competitive pressures and speed of R&D and product innovation is prompting many multinational enterprise customers to outsource their core activities to suppliers. Despite organizational challenges due to cultural and physical separation from their partners, these are now charged with supplier-driven innovation. This study looks at key drivers of supplier innovativeness, examines the role of cross-national differences in shaping supplier innovativeness and examines the impact of this dimension on relationship performance in international customer–supplier relationships. Our findings from a large-scale survey of Taiwanese electronics suppliers provide evidence of the contribution of antecedents such as customer orientation, customer control and technological uncertainty to the enhancement of supplier innovativeness. Innovativeness contributes to increased customer dependence and improves relationship performance. Differences in knowledge bases stemming from different institutions are also tested in this study; we find that knowledge distance may be detrimental to the innovativeness-performance link in international exchange relationships.     

产品生命周期过程(横向集成)供应商选择模型研究

通过分析集成化供应链管理环境下供应商选择过程,给出了选择指标体系及选择步骤。在此基础上,建立了“横向”集成型企业供应商选择的模糊综合评价选择模型。应用此模型可对选择最满意的供应商做出相应的决策。     

A continuous-review model for dual intercontinental and domestic outsourcing

When making sourcing decisions, many firms consider only the direct and most visible supply-chain costs, such as unit production costs and ocean-shipping costs. Often ignored are the hidden direct and indirect costs in long supply chains, and their impact on profitability. As supply chains lengthen, supply-chain disruptions undercut the ability of manufacturers and retailers to satisfy market demands. Supply-chain disruptions add costs by forcing companies to increase inventories, to juggle production and shipping schedules, to incur excessive backordering, and to airfreight or discount the prices of goods that were not in the right place at the right time. The question is, can higher incidence of supply-chain disruptions in intercontinental supply chains justify keeping the domestic suppliers? To address the question, this paper presents a hybrid continuous-review inventory model for dual intercontinental and domestic outsourcing. The conditions for domestic outsourcing only, for intercontinental outsourcing, and for dual outsourcing were established. The problem of minimising the long-run average cost of outsourcing was investigated, and mathematical optimisation was used to illustrate the model. It is shown that if the cost of service failure outweighs the cost differential between domestic and intercontinental outsourcing, keeping domestic suppliers may be a good option.     

Models for supplier selection and risk mitigation: a holistic approach

According to a study conducted by PwC and the Business Continuity Institute in 2013, 75% of companies experience at least one major supply chain disruption a year and majority of the disruptions were caused by supply-related problems. With an increasing emphasis on upstream risk, risk management in supplier selection has become a critical issue faced by companies. Although previous studies proposed different methods and tools for effective and efficient supplier selection, only few approaches have attempted to incorporate risk mitigation strategies in supplier selection decisions. Our study aims to fill this gap by considering a wide range of quantitative and qualitative risk factors in supplier selection and evaluates the efficacy of alternative risk mitigation strategies in this context. Moreover, we suggest that both upstream and downstream strategies should be utilised simultaneously rather than relying on a single type of strategy. We further suggest that it is critical to align upstream and downstream risk mitigation strategies to reduce risk. We employ multi-objective optimization-based simulation in developing a decision model and consider data from an automotive parts manufacturer to demonstrate the application of our approach.     

分散供应链中混合生产的产品质量战略

利用Tullock竞赛函数对混合生产的产品质量战略进行讨论。研究表明,混合生产会促进产品质量的提升,在一定条件下,制造商的产品质量甚至会高于单一自制下的产品质量;若外包供应商收取的批发价格足够低,制造商更倾向于混合生产而非单一外包和单一自制;实施混合生产可能会伤害外包供应商;制造商偏好烈性较强的质量竞赛,而外包供应商偏好烈性较弱的质量竞赛。     

A clustering algorithm for supplier base management

Supplier base management is an important strategy for managing global, customer driven supply chains. Successful supplier base management can effectively handle supply side exceptions, which may have significant business implications. Currently, there is a trend to reduce the size of the supplier base which makes the coordination and interaction among suppliers more effective, less costly and time consuming. The goal of this research is to present a clustering algorithm, named min-min-roughness (MMR) to cluster suppliers into smaller, more manageable groups with similar characteristics. Due to the fact that supplier data are mainly categorical in nature, MMR, based on rough set theory (RST) is developed for categorical data clustering which is also capable of handling the uncertainty during the clustering process. One potential benefit of applying MMR to supplier base management is that more realistic benchmarking can be obtained and the fulfilment operation can be sped up by reducing the number of variables impacting the operations. In addition, the characteristics of each smaller group of suppliers can be summarised and exploited to handle supply side disruptions.     

Credit guarantee mechanism with information asymmetry: a single sourcing model

This study concerns small and medium-sized enterprise (SME) suppliers suffering from cash constraints in operations, money shortages with possible disruptions and cost uncertainty because of the distributor’s supply risk and the information asymmetry. Thus, this study adopts the distributor’s (buyer’s) perspective and applies a credit guarantee mechanism with an incentive contract as a risk management tool. The distributor can adopt incentive contracts to reveal the type of its supplier; the higher the inefficient supplier’s contribution to the distributor, the smaller the gap between procurement contract quantities with the efficient supplier and procurement contract quantities with the inefficient supplier. An insight into practice is that incentive contracts are tools for acquiring ideal suppliers in the supply base and help companies such as Li & Fung enhance their competitive capabilities.     

中国造船工业供应商评价指标体系与管理体制构建

对于中国造船企业，构建完整的供应商管理体系是其从分散型采购体系向一体化采购体系整合的关键步骤之一。本文主要针对中国造船工业供应商管理的特点以及所存在的不足，将质量、交付能力、价格、服务能力和持续改进这5个定量评价指标与供货商关系指标和供货商管理能力指标这2个定性评价指标相结合，运用AHP法，构建了造船行业的供应商评价指标体系，并依据这一指标体系，构建了与造船行业集中化采购体系相适应的供应商管理体制。     

Global supplier selection: a fuzzy-AHP approach

Global supplier selection has a critical effect on the competitiveness of the entire supply chain network. Research results indicate that the supplier selection process appears to be the most significant variable in deciding the success of the supply chain. It helps in achieving high quality products at lower cost with higher customer satisfaction. Apart from the common criteria such as cost and quality, this paper also discusses some of the important decision variables which can play a critical role in case of the international sourcing. The importance of the political-economic situation, geographical location, infrastructure, financial background, performance history, risk factors, etc., have also been pointed out in particularly in the case of global supplier selection. Supplier selection problem related to the global sourcing is more complex than the general domestic sourcing and as a result it needs more critical analysis, which could not be found properly in past available literatures. This paper discusses the fuzzy based Analytic Hierarchy Process (fuzzy-AHP) to efficiently tackle both quantitative and qualitative decision factors involved in selection of global supplier in current business scenario. The fuzzy-AHP is an efficient tool to tackle the fuzziness of the data involved in deciding the preferences of the different decision variables involved in the process of global supplier selection. The triangular fuzzy numbers are used to transform the linguistic comparison of the different decision criteria, sub-criteria and performance of the alternative suppliers. The pairwise comparison matrices help in deciding the synthetic extent value of each comparison and finally, the priority weights of one alternative over another are decided in this paper. An example from a manufacturing industry searching for the global supplier for a critical component is used to demonstrate the effective implementation procedure of proposed fuzzy-AHP technique. The proposed model can provide the guidelines and directions for the decision makers to effectively select their global suppliers in the current competitive business scenario.     

Fuzzy multiple-goal programming for analysing outsourcing cost-effectiveness in hi-tech manufacturing

Given high-tech industry trends such as limited production, diverse model range, short product life cycle, and high customer responsiveness, issues related to recognitive core vs. non-core operations in internal vs. external environments are crucial in hi-tech production systems planning. This work elucidates the relationship between capacity planning and suppliers with a focus on quantity allocation, manufacturing quantity, capacity limit, warehouse space, and time period for hi-tech production planning. A fuzzy multiple-goal programming approach is adopted to model total cost, holding cost, and rework cost in order to analyse the relative cost-effectiveness of different factors. The proposed model was examined via the fuzzy analysis of its application to an actual building-integrated photovoltaic (BIPV) manufacturer with variable characteristics. The proposed model of cost-effectiveness accommodates variables such as multiple components, quality, and responsiveness, it integrates multi-stage functions, and a specific implementation is demonstrated. Various scenarios are designed to analyse the transaction options for outsourcing under combined schemes. The analytical results in this study can help decision makers to systematically analyse the cost effectiveness of outsourcing during capacity planning in practical applications.     

Capacitated production planning with outsourcing in an OKP company

This paper addresses a dynamic capacitated production planning (CPP) problem in small to medium-sized enterprises (SMEs). These companies practise their businesses based on a manufacturing paradigm called one-of-a-kind production (OKP). Typically, they employ outsourcing in their CPP practice. Therefore, the CPP problem in this paper includes outsourcing, which is called the outsourcing CPP problem. The outsourcing strategy considered in this paper has the following features: (1) outsourcing takes place when the demand exceeds the capacity; (2) all excessive demands are outsourced without backlogging; and (3) production, inventory, and outsourcing levels all have a limit. One important difference of the problem considered in this paper from other problems is that the cost functions are considered arbitrarily time-varying. The outsourcing CPP problem is formulated into an optimization problem which captures the mentioned features. The objective of the problem is to minimize the total cost. It is very likely that there is no solution in our model so we propose a necessary and sufficient condition for feasible solutions. Dynamic programming techniques are employed in searching for a global optimal solution with a pseudo-polynomial time. This paper also presents a case study for a real-life problem in an OKP company to illustrate our approach and to show its effectiveness. The case study has shown that our approach is very effective.