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Outsourcing vs. in-house production: a comparison of supply chain contracts with effort dependent demand


  • Kaya, Onur


We analyze the effort and pricing decisions in a two facility supply chain in which one of the parties can exert costly effort to increase demand. We consider an outsourcing model in which the supplier makes the effort decision and an in-house production model in which the manufacturer decides on the effort level and we compare these two models with each other. We analyze and compare several contracts for decentralized supply chain models and we aim to find which contracts are best to use in different cases. We find the optimal contract parameters in each case and perform extensive computational testing to compare the efficiencies of these contracts. We also analyze the effect of the powers of the parties in the system and the effect of system parameters on the performances of the contracts and on the optimal values of the model variables such as price, effort and demand.

Suggested Citation

  • Kaya, Onur, 2011. "Outsourcing vs. in-house production: a comparison of supply chain contracts with effort dependent demand," Omega, Elsevier, vol. 39(2), pages 168-178, April.
  • Handle: RePEc:eee:jomega:v:39:y:2011:i:2:p:168-178

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    Cited by:

    1. Balachandran, Kashi R. & Wang, Hsiao-Wen & Li, Shu-Hsing & Wang, Taychang, 2013. "In-house capability and supply chain decisions," Omega, Elsevier, vol. 41(2), pages 473-484.
    2. Guo, Xiaolong & Dong, Yufeng & Ling, Liuyi, 2016. "Customer perspective on overbooking: The failure of customers to enjoy their reserved services, accidental or intended?," Journal of Air Transport Management, Elsevier, vol. 53(C), pages 65-72.
    3. Niu, Baozhuang & Jin, Delong & Pu, Xujin, 2016. "Coordination of channel members’ efforts and utilities in contract farming operations," European Journal of Operational Research, Elsevier, vol. 255(3), pages 869-883.
    4. Stålhane, Magnus & Andersson, Henrik & Christiansen, Marielle & Fagerholt, Kjetil, 2014. "Vendor managed inventory in tramp shipping," Omega, Elsevier, vol. 47(C), pages 60-72.
    5. Li, Xiang & Li, Yongjian & Cai, Xiaoqiang, 2012. "A note on the random yield from the perspective of the supply chain," Omega, Elsevier, vol. 40(5), pages 601-610.
    6. Palsule-Desai, Omkar D., 2013. "Supply chain coordination using revenue-dependent revenue sharing contracts," Omega, Elsevier, vol. 41(4), pages 780-796.
    7. Anna Nagurney & Dong Li, 2014. "A Dynamic Network Oligopoly Model with Transportation Costs, Product Differentiation, and Quality Competition," Computational Economics, Springer;Society for Computational Economics, vol. 44(2), pages 201-229, August.
    8. Ma, Peng & Wang, Haiyan & Shang, Jennifer, 2013. "Contract design for two-stage supply chain coordination: Integrating manufacturer-quality and retailer-marketing efforts," International Journal of Production Economics, Elsevier, vol. 146(2), pages 745-755.
    9. Chen, Jing & Zhang, Hui & Sun, Ying, 2012. "Implementing coordination contracts in a manufacturer Stackelberg dual-channel supply chain," Omega, Elsevier, vol. 40(5), pages 571-583.
    10. repec:pal:jorsoc:v:68:y:2017:i:6:d:10.1057_s41274-016-0111-5 is not listed on IDEAS


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