A holistic approach for production outsourcing

Abstract

PurposeThe purpose of this paper is to develop and demonstrate an outsourcing model in which constraint resource prevents the throughput of the organization.Design/methodology/approachThe paper proposes an integrated model by combining the Hurwicz criterion, the theory‐of‐constraints (TOC) and linear programming (LP) into a single evaluation model in a multi‐product constraint resource environment. A case study is presented to demonstrate the effectiveness of this model. The decision model compares four alternatives: standard cost accounting, standard TOC, LP analysis, and our own solution, which is an approach that combines TOC, LP, and the Hurwicz criterion.FindingsThe numerical results show that this model is superior and more realistically optimizes resource allocation and measures the performance of the model.Research limitations/implicationsThis research is limited to the production processes that do not have multiple constraints.Originality/valueThis is the first time that the integrated model comprising of Hurwicz‐TOC‐LP model has been used to maximize the product throughput. Instead of calculating $ return per constraint minute, this method decides the priority of product and resource center that maximizes the product throughput in the constraint resource environment. It makes a significant contribution to the manufacturing organization where one can compare the financial performance of the organization by selecting the right decision model.