Mathematical Modelling of Inventory and Process Outsourcing for Optimization of Supply Chain Management

Outsourcing is one of the major challenges for production firms in the current supply chain management (SCM) due to limited skilled workers and technology resources. There are too many parameters involved in the strategic decisions of the outsourcing level, quantity, quality, and cost. The outsourcing process removes the burden of capital investment; however, still it creates crucial concerns related to inventory control and production management by adding extra inventories. The semi-finished products are outsourced for a few processes due to limited resources and then returned to the manufacturer for the finishing operations. The article is based on the mathematical modeling and optimization of the process outsourcing considering imperfect production with variable quantity for the effective supply chain management. The numerical experiment was performed based on the data taken from the industry for the application of the proposed outsourcing-based SCM model. The results are significant in finding optimal production and outsourcing quantity with a minimum total cost of SCM. The sensitivity analysis was performed to see how important the effect of input parameters is on the total cost. The research is an important contribution in developing a mathematical model of process outsourcing in SCM. The research study is beneficial for managers to find the economic feasibility of process outsourcing for managing inventory and supply chain between manufacturer and outsourcing vendor.