Resource Allocation under Flexible Demand and Supply for Services Organizations

Senior executives of multi-national services organizations face the biggest challenge of optimally and effectively managing its resources (people and infrastructure) across the borders. Allocating the resources to various client projects (or processes) by optimally utilizing them lead to increased return on investment (RoI) for the corporation. In this research, we propose a non-linear integer optimization model for allocating the demand (client projects) to the supply (resources) with certain variability in the demand and supply. The model allocates the demand to the available capacity (of supply) by maximizing the RoI of various stakeholders - (i) clients: who bid for resources by specifying per unit price, also have valuation for the resources based on the number of units allocated, and maximizes the marginal gain for their service contracts, and (ii) service provider: who estimates the capacity and allocate to the demand by maximizing the revenue and minimizing the cost associated for managing the capacity. For a special case in which, (i) the bidders' (clients') per unit prices' are based on their private valuations, (ii) the winning bidders pay their own bid price, (iii) the valuation functions are convex, and (iv) the slack penalty functions are linear, we prove that the greedy allocation is optimal. Also, we analyse the sensitivity of the cost parameter associated with the service provider on a business use-case.

I. INTRODUCTION

Information technology (IT) and information technology enabled services (ITeS) outsourcing has grown rapidly over the past two decades. It is often viewed as a way of contracting out a business function being executed in-house to an external service provider. The objectives of outsourcing include minimizing cost of operations by focusing on core business functions rather than that of managing and maintaining IT and ITeS related resources (people and infrastructure) and business functions. It is in a sense a contract between the service provider and the client involving exchange of services and payments. Generally, these outsourcing contracts run into multiple years. Clients can select a set of functions or activities from predefined set called a service catalog to support their business needs. Service catalog may include remote management of client's business applications and/or infrastructure including servers, storage, databases, security, network and other assets. The contracts also specifies an agreed upon service level that the provider must adhere to under all circumstances. Based on the size of client's operation and functions selected from the catalog, the service provider will have to staff an adequate number of appropriately skilled service agents (people) to meet the service level requirements.