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Supply chain networks with global outsourcing and quick-response production under demand and cost uncertainty

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Abstract

This paper develops a modeling and computational framework for supply chain networks with global outsourcing and quick-response production under demand and cost uncertainty. Our model considers multiple off-shore suppliers, multiple manufacturers, and multiple demand markets. Using variational inequality theory, we formulate the governing equilibrium conditions of the competing decision-makers (the manufacturers) who are faced with two-stage stochastic programming problems but who also have to cooperate with the other decision-makers (the off-shore suppliers). Our theoretical and analytical results shed light on the value of outsourcing from novel real option perspectives. Moreover, our simulation studies reveal important managerial insights regarding how demand and cost uncertainty affects the profits, the risks, as well as the global outsourcing and quick-production decisions of supply chain firms under competition.

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Authors and Affiliations

  1. Department of Business and Economics, Pennsylvania State University, Hazleton, PA, 18202, USA

    Zugang Liu

  2. Department of Finance and Operations Management, Isenberg School of Management, University of Massachusetts, Amherst, MA, 01003, USA

    Anna Nagurney

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  1. Zugang Liu
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  2. Anna Nagurney
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Correspondence to Zugang Liu.

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Liu, Z., Nagurney, A. Supply chain networks with global outsourcing and quick-response production under demand and cost uncertainty. Ann Oper Res 208, 251–289 (2013). https://doi.org/10.1007/s10479-011-1006-0

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