Research on the Decision Model for Self-Production and Outsourcing Choices under Limited Production Capacity

Abstract

Problem statement: In the face of competitive environments with uncertain demands and a trend toward High-Mix, Low-Volume (HMLV) production, self-production or direct outsourcing has troubled decision-makers of enterprise for a long time. In the previous studies, not much has been written about the topic. Approach: Therefore, this study applies the Analytic Hierarchy Process (AHP) to investigate the topic through either qualitative or quantitative decision-making factors that influence enterprise decision making, as well as through the viewpoint of comparative advantage. Results: Besides considering relevant factors in decision making, this study also derives a decision-making model as the basis for enterprises to choose from self-production and outsourcing under limited production capacity. Conclusion: Through weighting the importance of each decision factor and proposal by the company’s decision maker based on their strategic needs and through eigenvector calculations, the company can obtain an optimal solution, faced with the two choices, based on model calculations. Also, based on the importance priority of each proposal in the decision matrix, the company can conduct production planning and devise purchasing plans.