Horizontal Cooperation in Subcontracting: A Case Study in Home Textile Industry

Abstract

Home textile is the most common business line in Denizli, Turkey. However, most companies are not integrated, i.e., they do not include the entire production processes in their facilities. Different stages of manufacturing process are outsourced to other companies located in the same geographic region. As a result of this, there is a considerable increase in transportation costs. In this paper, we consider collaboration between companies in a cluster to reduce their transportation costs. A game theoretic approach is proposed such that the subcontractors can be used jointly and their fabric production capacity can be split among the companies in the coalition in order to meet their demands. A case study of four home textile companies is provided to illustrate the approach. Coalition cost is allocated using different cost allocation methods, and compared to the current situation, we obtain significant cost reductions.