Coordination and competition in outsourcing operations

This dissertation comprises three essays in which we study various outsourcing and subcontracting settings with the purpose of (i) investigating the benefits across the supply chain due to coordination at the shop floor scheduling level, (ii) finding allocations of the chain-wide savings among the supply chain members to promote coordination, (iii) providing easy to manage priority scheduling rules which will leverage the chain performance without centralized control, and (iv) studying various contractual agreements with schedule-specific terms.; The first essay deals with an outsourcing model where a set of manufacturers outsource their non-core operations to the same third-party whose limited production capacity represented by manufacturing windows is booked in a first-come-first-served order. After the initial bookings are completed, the third-party proposes a centralized schedule which minimizes the chain-wide costs as well as a savings allocation scheme, i.e. a core allocation. In the second essay, each manufacturer processes part of his jobs on a dedicated in-house resource and subcontracts the remaining workload of his to a third-party with the objective of minimizing the maximum completion time of the jobs in his entire batch. The first-come-first-served booking of the third-party capacity or the competitive booking strategies suggested by Vairaktarakis (2006) do not result to the maximum utilization of the third-party capacity. Algorithms to find the optimal and/or near-optimal centralized schedules and a savings allocation scheme are presented. The third-essay essay aims to investigate the contractual agreements between a manufacturer and a third-party with previously committed orders. The manufacturer cannot commit to a due date and subcontracts part of his workload to the third-party. Two contracts are considered: (i) The manufacturer is charged a unit processing fee for his workload processed by the third-party; (ii) In addition to the unit processing fee, the third-party shares the tardiness penalties incurred. Supply chain coordination is possible under the second contract. Even when there is coordination failure the second contract outperforms the first contract in terms of supply chain efficiency.