IDEAS home Printed from https://ideas.repec.org/a/bla/popmgt/v27y2018i7p1320-1333.html
   My bibliography  Save this article

Horizontal Subcontracting From Competitors: When and What?

Author

Listed:
  • Li Li
  • Li Jiang

Abstract

We investigate horizontal subcontracting between two firms that compete in selling to uncertain markets. Each firm manages resources to make a key component indispensable for final assembly by both firms. A horizontal subcontract stipulates that one of them prepares key component or even produces final product for the other. The subcontract can be signed before or after resource preparation, which we refer to as forward and spot subcontracting, respectively. With the presence of demand uncertainty, the subcontract is signed before (after, resp.) demand realization in forward (spot, resp.) subcontracting, while resources are always prepared in advance. Forward subcontracting enables the firms to achieve the maximum overall cost saving by concentrating all production activities in the more cost‐efficient firm. Spot subcontracting draws the firms to unilateral undertaking to prepare resources and cooperative resource allocation. This gives rise to an efficiency effect by balancing production and market selling between the firms, and a pooling effect that enables them to profit from synergies between markets. The subcontracting subject is crucial to the contribution of total cost saving relative to total revenue gain to the efficiency effect, but is inconsequential on the scale of the pooling effect. We conduct a comparative investigation into forward and spot subcontracting, with the subject playing a differentiating role, and explore the impacts of the means and variances of demand intercepts and the firms’ costs on system performance under various horizontal subcontracting modes differentiated by timing and subject.

Suggested Citation

  • Li Li & Li Jiang, 2018. "Horizontal Subcontracting From Competitors: When and What?," Production and Operations Management, Production and Operations Management Society, vol. 27(7), pages 1320-1333, July.
  • Handle: RePEc:bla:popmgt:v:27:y:2018:i:7:p:1320-1333
    DOI: 10.1111/poms.12873
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/poms.12873
    Download Restriction: no

    File URL: https://libkey.io/10.1111/poms.12873?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Liang, Guitian & Gu, Chaocheng, 2021. "The value of target sales rebate contracts in a supply chain with downstream competition," International Journal of Production Economics, Elsevier, vol. 242(C).
    2. Dong, Binwei & Tang, Wansheng & Zhou, Chi & Ren, Yufei, 2021. "Should original equipment manufacturer assist noncompetitive contract manufacturer to expand capacity?," Omega, Elsevier, vol. 103(C).
    3. Li, Li & Jiang, Li, 2022. "Saving costs and improving selling through competitor cooperation in sourcing," European Journal of Operational Research, Elsevier, vol. 302(3), pages 970-982.
    4. Gu, Chaocheng & Wei, Juan & Wei, Ying, 2021. "Sourcing under competition: The implications of supplier capital constraint and supply chain co-opetition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    5. Chu, Xiang & Liu, Jun & Ren, Long & Gong, Daqing, 2020. "Optimal contract design with a common agency in last-mile logistics," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 139(C).
    6. Sijing Deng & Jiayan Xu, 2020. "Ex ante and Ex post Subcontracting between Two Competing Bidders," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 37(01), pages 1-22, January.
    7. Ashesh Kumar Sinha & Ananth Krishnamurthy, 2020. "Production and Capacity Utilization Strategies in Supply Chains for Complex Engineered Products," Production and Operations Management, Production and Operations Management Society, vol. 29(2), pages 462-480, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:popmgt:v:27:y:2018:i:7:p:1320-1333. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1937-5956 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.