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Outsourcing management under various demand Information Sharing scenarios

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  • Xiaowei Zhu

    (West Chester University of Pennsylvania)

Abstract

Outsourcing has been praised as a cost effective solution for many companies. One of the major potential issues of outsourcing is the poor quality of outsourcing work. In this research, Stackelberg game is used to design an outsourcing contract for a supplier and a buyer to decide the optimal outsourcing price, retail price, and outsourcing quality with demand uncertainty. The supplier and buyer’s demand forecasting are private information to each part and cause asymmetric information in the outsourcing contract design. Three different forecast scenarios are studied, including Non-Information Sharing, Information Sharing, and Buyer Forecasting case. Optimal values of outsourcing price, retail price, and outsourcing quality level are derived. We then compare the optimal policies of three cases and derive several managerial insights. Results of extensive numerical experimentation are also presented.

Suggested Citation

  • Xiaowei Zhu, 2017. "Outsourcing management under various demand Information Sharing scenarios," Annals of Operations Research, Springer, vol. 257(1), pages 449-467, October.
    • Handle: RePEc:spr:annopr:v:257:y:2017:i:1:d:10.1007_s10479-015-1944-z
    DOI: 10.1007/s10479-015-1944-z
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