Business Commons^™

Outsourcing To Non-Identical Suppliers Via Service Competition, Ehsan Elahi, Saif Benjaafar, Karen Donohue

Management Science and Information Systems Faculty Publication Series

In this paper, we consider a single buyer who wishes to outsource a fixed demand for a manufactured good or service at a fixed price to a set of N suppliers. We examine the value of competition as a mechanism for the buyer to elicit good service quality from her suppliers. In particular, we consider a scheme in which the buyer allocates a proportion of demand to each supplier, with the proportion a supplier receives increasing in the service level she offers. Suppliers compete for expected market share, which increases in the offered service level. The suppliers affect their service …