Sourcing decision in the presence of a complementary component

Existing studies on the make-or-buy decision traditionally consider a sourcing decision for one component. They implicitly assume a single key component of a product or independence among a set of components in terms of the sourcing decision. In practice, however, most products have more than one key component. Thus motivated, this study analyzes a make-or-buy decision of a product in consideration of other components provided by an incumbent supplier(s). The result shows that it is important to make a make-or-buy decision taking into account opportunistic behavior of the incumbent supplier. The mechanism that the opportunistic behavior influences the manufacturer’s profit is also identified. This work has been accepted for publication at Omega: The international journal of management science. Professor Bosung Kim in the department of industrial engineering and his colleague Jeongeun Sim, professor at Kwangwoon university, are the corresponding author and the first author, respectively. 

Fig.) A typology of make-or-buy decision
Make-or-buy decision on component C1 is classified into the three types due to the presence of the other component (C2). They are: in-house production (a), outsourcing to incumbent supplier (b), and outsourcing to the entrant supplier (c).

* https://doi.org/10.1016/j.omega.2020.102281  

(2021.6.24.)