Comparative study of production outsourcing models

The purpose of this paper is to study the various modalities of production outsourcing service and compare three different models, namely: standard accounting, theory of constraints (TOC) and linear programming (LP) enhancement of TOC.

This is a diagnostic study concerned with accurately describing the characteristics of outsourcing phenomenon and defining clearly the objective function and the associated constraints. The optimization models have been constructed and analyzed in a real‐life situation by collecting data with sufficient precision.

This paper brings out distinctively different options for outsourcing services and compares the results with the findings available in literature. The significant finding is that it is an imperative to evaluate the outsourcing approaches from a situational perspective governed by internal and external constraints imposed by competitive forces.

This research does not embrace the sensitivity of various cost parameters as well as the fuzziness of the dynamics of competition.

The models and the analyses would facilitate systemic decision support to production, procurement and marketing managers engaged in the competitive value chain. For successful outsourcing, the business goals must be validated with financial justification. Outsourcing is not only carried out in cases of non‐availability of resources internally, or to meet the peak demand, but also it helps in cash infusion, reduction in operating costs and restructuring of resources.

Manufacturing organizations should not only implement outsourcing in an ad hoc manner but should try to innovate on different outsourcing practices and should make attempts to study and analyze methods that are better and the best to attain competitive advantage.