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Subcontracting, Coordination, Flexibility, and Production Smoothing in Aggregate Planning


Author Info

  • Morton I. Kamien

    (J. L. Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois 60208)

  • Lode Li

    (School of Organization and Management, Yale University, New Haven, Connecticut 06520)

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    We propose a model in which subcontracting can be explicitly considered as a production planning strategy. Possible market and nonmarket subcontracting mechanisms and their costs are discussed. We show that a class of feasible subcontracting mechanisms in which firms coordinate their production via subcontracts Pareto-dominate other mechanisms. We then offer an example with quadratic cost functions and coordination subcontracts; linear decision rules for production, inventory, and subcontracting are derived. In the example, subcontracting reduces the variability in production and inventory. The same interpretation can be used for flexibility of manufacturing resources.

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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 36 (1990)
    Issue (Month): 11 (November)
    Pages: 1352-1363

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    Handle: RePEc:inm:ormnsc:v:36:y:1990:i:11:p:1352-1363

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    Related research

    Keywords: aggregate planning; production smoothing; subcontracting; coordination; dynamic programming; linear decision rules;


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    Cited by:
    1. Boulaksil, Youssef & Fransoo, Jan C., 2009. "Order release strategies to control outsourced operations in a supply chain," International Journal of Production Economics, Elsevier, vol. 119(1), pages 149-160, May.
    2. Olhager, Jan & Rudberg, Martin & Wikner, Joakim, 2001. "Long-term capacity management: Linking the perspectives from manufacturing strategy and sales and operations planning," International Journal of Production Economics, Elsevier, vol. 69(2), pages 215-225, January.
    3. Szmerekovsky, Joseph G., 2007. "Single machine scheduling under market uncertainty," European Journal of Operational Research, Elsevier, vol. 177(1), pages 163-175, February.
    4. Maike Scherrer-Rathje & Patricia Deflorin & Gopesh Anand, 2010. "Outsourcing and its Impact on Manufacturing Flexibility: Contingencies Matter," Working Papers 0125, University of Zurich, Institute for Strategy and Business Economics (ISU).
    5. Kogan, Konstantin & Tapiero, Charles S., 2009. "Optimal co-investment in supply chain infrastructure," European Journal of Operational Research, Elsevier, vol. 192(1), pages 265-276, January.
    6. Wang, Li Ming & Liu, Li Wen & Wang, Yong Jie, 2007. "Capacity decisions and supply price games under flexibility of backward integration," International Journal of Production Economics, Elsevier, vol. 110(1-2), pages 85-96, October.
    7. Bertrand, J. W. M. & Sridharan, V., 2001. "A study of simple rules for subcontracting in make-to-order manufacturing," European Journal of Operational Research, Elsevier, vol. 128(3), pages 509-531, February.
    8. Wang, Charles X. & Webster, Scott & Zhang, Sidong, 2011. "A comparison of two sourcing tactics for a new component," European Journal of Operational Research, Elsevier, vol. 211(2), pages 310-317, June.


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