A framework for comparing outsourcing strategies in multi-layered supply chains

Abstract The growth in the use of the Internet as one of today's main tools of business communications has drastically increased competitiveness and changed many of the existing axioms creating more complex supply chains that consist of several layers. In this paper, we develop a framework to assess the performance of these emerging types of multi-layered supply chains when coupling the outsourcing strategies, whether it is based on competitive bidding/E-bidding or long–term partnerships, with the required level of safety stock that the parent company sets to satisfy the quality of its services. In order to estimate the safety stock for each of the outsourcing strategies, the supply chain is modeled as a series of tandem queues. Based on the sojourn times that a particular order spends in process at the various levels of the chain, the lead time is estimated and, consequently, one can determine the needed safety stock as well as draw a first cut comparison for the annual cost estimates of each of the possible outsourcing options. We include an illustrative example for the application of the proposed framework as well as simulation experiments for cases when closed-form solutions of the queuing models are difficult to obtain.

[1]  Richard D. Metters,et al.  Quantifying the bullwhip effect in supply chains , 1997 .

[2]  C. Poirier,et al.  E-Supply Chain: Using the Internet to Revolutionize Your Business - How Market Leaders Focus Their Entire Organization on Driving Value to Customers , 2000 .

[3]  Martin Grieger.  Electronic marketplaces: A literature review and a call for supply chain management research , 2003, Eur. J. Oper. Res..

[4]  Andreas Otto,et al.  Does supply chain management really pay? Six perspectives to measure the performance of managing a supply chain , 2003, Eur. J. Oper. Res..

[5]  R. Kapuściński,et al.  Value of Information in Capacitated Supply Chains , 1999 .

[6]  Lucio Zavanella,et al.  The consignment stock of inventories: industrial case and performance analysis , 2003 .

[7]  R. Hill.  The single-vendor single-buyer integrated production-inventory model with a generalised policy , 1997 .

[8]  S. Minner.  Multiple-supplier inventory models in supply chain management: A review , 2003 .

[9]  Stuart I. Feldman,et al.  E-Business: Electronic Marketplaces , 2000, IEEE Internet Comput..

[10]  Frank Y. Chen,et al.  Quantifying the Bullwhip Effect in a Simple Supply Chain: The Impact of Forecasting, Lead Times, and Information.: The Impact of Forecasting, Lead Times, and Information. , 2000 .

[11]  H. Wee,et al.  Integrated inventory model for deteriorating items under a multi-echelon supply chain environment , 2003 .

[12]  Layek Abdel-Malek,et al.  Managing Stocks in Supply Chains: Modeling and Issues , 2002 .

[13]  A. Weele,et al.  Purchasing and supply chain management : analysis, planning and practice , 2000 .

[14]  Roger M. Hill,et al.  The optimal production and shipment policy for the single-vendor singlebuyer integrated production-inventory problem , 1999 .

[15]  Roberto Verganti,et al.  Inventory management in a multi-echelon spare parts supply chain , 2003 .

[16]  Sheldon M. Ross,et al.  Introduction to probability models , 1975 .

[17]  Christopher S. Tang,et al.  The Value of Information Sharing in a Two-Level Supply Chain , 2000 .

[18]  Stefan Seuring,et al.  Cost management in supply chains , 2002 .

[19]  David F. Pyke,et al.  Inventory management and production planning and scheduling , 1998 .