A Decision Model on Production Planning With Outsourcing

This study is oriented to a general problem context for most manufacturers that produce products for uncertain market demands. Manufacturers usually have two alternative modes for the production: One is to outsource parts from outside suppliers and then assemble them, and the other is to in-house manufacture parts and then assemble them. Each mode has its relative merits. This paper studies how to balance the tradeoff between the two modes. We utilize the dynamic programming approach to investigate the optimal decision on the aforementioned two modes during each planning period.