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Outsourcing Through Competition: What Is The Best Competition Parameter?, Ehsan Elahi
Outsourcing Through Competition: What Is The Best Competition Parameter?, Ehsan Elahi
Management Science and Information Systems Faculty Publication Series
In this paper we consider a single buyer who wants to outsource the manufacturing of a product to N potential suppliers. The buyer’s objective is to maximize the service level she receives from the suppliers. The suppliers compete for the buyer’s demand based on a competition parameter which the buyer announces along with an allocation rule. We model each supplier as a make-to-stock queueing system. Using a simple proportional allocation function, we compare two competition parameters: service level and inventory level. We show that inventory competition creates a higher overall service level for the buyer. We also show an optimal …