Portland International Conference on Management of Engineering & Technology (PICMET)
Offshore outsourcing -- Analysis, Information technology -- Contracting out, Integer programming
Technology outsourcing has recently become a politically sensitive issue with proponents emphasizing longterm economic growth opportunities, and opponents pointing out immediate job losses. The underlying reason for outsourcing is often assumed to be the availability of cheaper labor outside the USA but this overlooks the possibility that companies may simply be seeking greater labor flexibility outside of US state and federal labor laws. This paper quantitatively tests a software company’s motivation to secure a flexible and adaptable labor pool. Although production lines located at multiple sites provide great flexibility for scheduling and costs because each site has its own local expenses, capacities, and capabilities. This flexibility comes at the cost of added complexity of production planning, hiring and training employees, and quality assurance of finished products. A mixed integer optimization model is introduced to evaluate an outsourcing decision by placing a value on labor flexibility. This model is then used to examine the sensitivity of the outsourcing decision to various parameters.
Fayed, A., Anderson, T., and Fenwick, D. Flexibility – Examining an Underappreciated Motivation for Outsourcing with an Optimization Model in a Small E-Product Manufacturer. Portland International Conference on Management of Engineering and Technology (PICMET ’05)