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Outsourcing structures and information flow in a three-tier supply chain


  • Guo, Pengfei
  • Song, Jing-Sheng
  • Wang, Yulan


We consider a three-tier supply chain consisting of an original equipment manufacturer (OEM), a contract manufacturer (CM) and a supplier. We analyze and compare three outsourcing structures that are currently implemented by top-tier OEMs: (1) inhouse consignment, under which the OEM signs independent contracts with the CM and the supplier; (2) turnkey with integration, under which the OEM contracts with an alliance of the CM and the supplier; and (3) turnkey, under which the OEM contracts with the CM, and the CM then subcontracts with the supplier. The OEM is a Stackelberg leader who decides how much of the end product to produce. All parties use take-it-or-leave-it wholesale-price contracts. Both the CM and the supplier have private information about their own production costs. The OEM has prior information about these costs, but this prior information depends on the specific outsourcing structure. Each party's optimal decision is characterized. We then compare each party's profits across the three outsourcing structures and identify which benefits and when.

Suggested Citation

  • Guo, Pengfei & Song, Jing-Sheng & Wang, Yulan, 2010. "Outsourcing structures and information flow in a three-tier supply chain," International Journal of Production Economics, Elsevier, vol. 128(1), pages 175-187, November.
  • Handle: RePEc:eee:proeco:v:128:y:2010:i:1:p:175-187

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    References listed on IDEAS

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    Cited by:

    1. Zhang, Jianxiong & Tang, Wansheng & Hu, Mingmao, 2015. "Optimal supplier switching with volume-dependent switching costs," International Journal of Production Economics, Elsevier, vol. 161(C), pages 96-104.
    2. Feng, Bo & Fan, Zhi-Ping & Li, Yanzhi, 2011. "A decision method for supplier selection in multi-service outsourcing," International Journal of Production Economics, Elsevier, vol. 132(2), pages 240-250, August.
    3. repec:eee:transe:v:107:y:2017:i:c:p:81-96 is not listed on IDEAS
    4. Sarker, Bhaba R., 2014. "Consignment stocking policy models for supply chain systems: A critical review and comparative perspectives," International Journal of Production Economics, Elsevier, vol. 155(C), pages 52-67.
    5. Islam, S.M. Shahidul & Hoque, Md. Abdul & Hamzah, Norhayati, 2017. "Single-supplier single-manufacturer multi-retailer consignment policy for retailers’ generalized demand distributions," International Journal of Production Economics, Elsevier, vol. 184(C), pages 157-167.
    6. Enis Kayis & Feryal Erhun & Erica L. Plambeck, 2013. "Delegation vs. Control of Component Procurement Under Asymmetric Cost Information and Simple Contracts," Manufacturing & Service Operations Management, INFORMS, vol. 15(1), pages 45-56, April.


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