“Production+ procurement” outsourcing with competitive contract manufacturer's partial learning and supplier's price discrimination
“Production+ procurement” outsourcing with competitive contract manufacturer's partial learning and supplier's price discrimination
It is widely observed that many original equipment manufacturers (OEMs) have relied on contract manufacturers (CMs) for production, even if the CMs have self-branded business. However, outsourcing “production + procurement” indicates deep cooperation between OEMs and CMs, and hence, induces the CMs to partially but legally learn the OEM's innovations. In this paper, we formulate an OEM's procurement outsourcing decisions to a competitive CM when the latter has partial learning ability. We formulate the OEM's trade-offs between its procurement cost saving and the intensified downstream competition because of the competitive CM's improved products. We find that the OEM prefers outsourcing “production + procurement” when the competitive CM's learning ability is either low or high. The CM's high learning ability will lower the OEM's marginal revenue but the OEM can save innovation investment cost if he outsources “production + procurement”. We also study the impact of the competitive CM's improved learning ability and the OEM's license fee charged to the competitive CM.
1917-1951
Niu, Baozhuang
7bf06afc-8f6b-4ea1-9c5f-27fd17d21b3c
Zeng, Fanzhuo
f1f8b7f6-b618-46fd-88fc-a08584249438
Chen, Lei
47fe92b6-7989-415e-bec5-eb8f8d6bca81
5 February 2021
Niu, Baozhuang
7bf06afc-8f6b-4ea1-9c5f-27fd17d21b3c
Zeng, Fanzhuo
f1f8b7f6-b618-46fd-88fc-a08584249438
Chen, Lei
47fe92b6-7989-415e-bec5-eb8f8d6bca81
Niu, Baozhuang, Zeng, Fanzhuo and Chen, Lei
(2021)
“Production+ procurement” outsourcing with competitive contract manufacturer's partial learning and supplier's price discrimination.
International Transactions in Operational Research, 28 (4), .
(doi:10.1111/itor.12904).
Abstract
It is widely observed that many original equipment manufacturers (OEMs) have relied on contract manufacturers (CMs) for production, even if the CMs have self-branded business. However, outsourcing “production + procurement” indicates deep cooperation between OEMs and CMs, and hence, induces the CMs to partially but legally learn the OEM's innovations. In this paper, we formulate an OEM's procurement outsourcing decisions to a competitive CM when the latter has partial learning ability. We formulate the OEM's trade-offs between its procurement cost saving and the intensified downstream competition because of the competitive CM's improved products. We find that the OEM prefers outsourcing “production + procurement” when the competitive CM's learning ability is either low or high. The CM's high learning ability will lower the OEM's marginal revenue but the OEM can save innovation investment cost if he outsources “production + procurement”. We also study the impact of the competitive CM's improved learning ability and the OEM's license fee charged to the competitive CM.
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“Production+ procurement” outsourcing with competitive contract manufacturer's partial learning and supplier's price discrimination
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Accepted/In Press date: 27 October 2020
e-pub ahead of print date: 14 November 2020
Published date: 5 February 2021
Identifiers
Local EPrints ID: 487344
URI: http://eprints.soton.ac.uk/id/eprint/487344
ISSN: 0969-6016
PURE UUID: c6b59b10-3e07-4a3d-ae5f-028c69d8a0c1
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Date deposited: 19 Feb 2024 20:25
Last modified: 24 Apr 2024 16:46
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Author:
Baozhuang Niu
Author:
Fanzhuo Zeng
Author:
Lei Chen
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