【Time】June 14th, 2013 (Friday) 14:00 ~ 15:00
【Venue】Room N412, Shunde Building
【Speaker】Prof. Susan Xu, Penn State University
【Title】Strategic Outsourcing Contract Participation and selection under cost uncertainty
【Abstract】Motivated by wide-spread outsourcing practices, this paper studies how a pre-outsourcing firm (client) facing uncertain operating costs selects an outsourcing contract between two contract types offered by different vendors, where a vendor will offer a contract if the expected profit of the contract satisfies its reservation value. We propose a real options model to determine the optimal policy structure for both the client and the vendors. We also investigate comparative statics of the client or vendor's optimal policy with respect to key system inputs.
The numerical results demonstrate that the cost of making a suboptimal %decision on either contract selection or outsourcing timing is significant. Our results help managers gain a better understanding on the closely intertwined relationship between the client's contract selection policy and a vendors' contract participation policy.