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A Study on Outsourcing Decision-making Strategy for OEM and CM with Investment Cost Allocation

Xiaorong Chen

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Abstract

This paper focuses on the outsourcing strategy in a supply chain with one original equipment manufacturer(OEM) and one contract manufacturer(CM).A game model is proposed based on investment cost allocation when OEM transferred new technology to the CM for increasing the products' value.Through the development of analytical models that maximize the profits,the optimal outsourcing decisions for OEM and CM are explored under both centralized decision and decentralized decision scenarios.It is also proved that centralized decision has more Pareto advantages than decentralized decision.

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What this paper is about

This paper focuses on the outsourcing strategy in a supply chain with one original equipment manufacturer(OEM) and one contract manufacturer(CM).A game model is proposed based on investment cost allocation when OEM transferred new technology to the CM for increasing the products' value.Through the development of analytical models that maximize the profits,the optimal outsourcing decisions for OEM and CM are explored under both centralized decision and decentralized decision scenarios.It is also proved that centralized decision has more Pareto advantages than decentralized decision.

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Available abstract

This paper focuses on the outsourcing strategy in a supply chain with one original equipment manufacturer(OEM) and one contract manufacturer(CM).A game model is proposed based on investment cost allocation when OEM transferred new technology to the CM for increasing the products' value.Through the development of analytical models that maximize the profits,the optimal outsourcing decisions for OEM and CM are explored under both centralized decision and decentralized decision scenarios.It is also proved that centralized decision has more Pareto advantages than decentralized decision.

Key concepts: Original equipment manufacturer, Outsourcing, Supply chain, Pareto principle, Business, Investment (military), Decision model, Industrial organization

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