Single-plant sourcing decisions with a multidimensional knapsack model

This paper addresses sourcing decisions and how those decisions can affect the management of a company’s assets. The study begins with a single-plant insourcing problem in which the facility chooses, from a list of parts, which parts to bring in-house. This model is extended to include an outsourcing element where, in addition to the decision of which parts to insource, parts currently in-house are considered for outsourcing. The selection is based on maximizing the value of the selected parts while remaining within the plant’s capacity. This is defined as the sourcing problem and modeled as a multidimensional knapsack problem (MKP). Characteristics of the sourcing problem are identified and compared to standard MKP test problems, then utilized to provide guidelines for generating industry-motivated data sets. Experiences with modeling and solving the sourcing problem for a sheet metal fabrication facility are reported.