Managing Service Quality in Multiple Outsourcing

Service operations, such as call centers and various business processes, are often outsourced by e-commerce companies and others to offshore locations for many operational reasons, including cost savings. The trade-off these companies face is lack of control over the service quality, which has affected customer satisfaction in many cases. When a customer's call is routed to a third-party call center rather than handled by the firm itself, the perception of quality loss could be a source of customer dissatisfaction. The problem intensifies when multiple call centers are involved. In our analytical model, the firm uses a contract for the allocation of quantity to motivate the two suppliers to improve their quality. Our results show that such a contract can induce an improvement in service quality in the market. In this way, the outsourcing firm's customers who use the call centers are assured of a higher level of consistent quality even if their calls are routed to one of the third-party call centers. We present analytical results on the optimal policies of both the buyer and the suppliers in a two-supplier market. We also study a more realistic asymmetric information case in which the buyer does not know the value of the suppliers' cost parameter and the buyer has to design a contract under information asymmetry. We also present numerical results. The paper contributes to theory by providing a game-theoretic model for a two-supplier outsourcing case with and without information asymmetry in which a new volume allocation strategy is proposed. The results provide practical guidelines to an outsourcing firm for ways to manipulate market variables to influence the suppliers and obtain higher service quality and profit levels.