Order release strategies to control outsourced operations in a supply chain

We consider an original equipment manufacturer (OEM) that outsources some of its production activities to a contract manufacturer that serves several customers on the same capacitated production line. The contract manufacturer is not willing to share all relevant information with the OEM, and therefore, a complex situation arises for the OEM to control the outsourced operations properly. In this paper, we discuss and compare the performance of three different order release strategies, which differ in the number of decision levels, such that the probabilistic behaviour of the contract manufacturer is (partly) incorporated and production plans are generated based on (deterministic) mathematical programming models. Simulation results show that an order release strategy with multiple decision levels performs significantly better than an order release strategy with only one decision level. We also discuss the conditions for a successful implementation of the more advanced order release strategy. Further, some ideas for future research are presented.