Outsourcing through Three-dimensional Competition

In this paper, we study an outsourced supply chain consisting of one buyer and two suppliers in whichthe buyer outsources manufacturing of a physical product to two competing suppliers. The supplierscompete for the buyers' demands share, and the buyer allocates the demands to the competing suppliersbased on three-dimensional allocation functions. We consider two certain types of allocation functionswhich depend on price, service level and product quality level. They include the exponential allocationfunction and the Cobb-Douglas allocation function. A three-stage game-theoretic framework ispresented to derive the equilibrium values. Since the problem lacks a closed-form solution, numericalstudies are conducted over a wide range of some key parameters.

Keywords:

Supply ChainCompetitionOutsourcing