Outsourcing and vendor selection model based on Taguchi loss function

In todayi s fiercely competitive environment, there is an emergence of the extended enterprise of interdependen t organizations. This leads to a steady increase in part and service outsourcing. The decisions relating to this topic are whether outsourcing is appropriate and which vendors should be selected. To make the decision, many attributes need to be consideredoboth cash and non-cash. Cash impacts can be measured directly where as non-cash impacts are hardly measured. This paper applies Taguchi loss function to measure the non-cash impacts. The non-cash impacts considered in this paper include quality, speed, dependability, and flexibility. A mathematical model is given based on both cash and non-cash impacts. A numerical example is given to illustrate the model. Finally, conclusions and discussions are given.