Outsourcing decision under Utopian environment

Abstract

Purpose

The aim of this paper is to develop and demonstrate an outsourcing decision model in which constraint resource prevents the throughput of the organization.

Design/methodology/approach

An integrated model is proposed by incorporating the weighted product model (WPM) of AHP in estimating the priority of each product in a multi‐product constraint resource environment. A numerical example is presented to demonstrate the effectiveness of this model. The outsourcing decision model compares four alternatives: Standard cost accounting, standard theory‐of‐constraints (TOC), LP analysis and an original solution.

Findings

The numerical results show that the proposed model is superior and more realistically optimizes resource allocation and measures the performance of the model.

Research limitations/implications

This research is limited to the production processes that do not have multiple constraints.

Practical implications

This research is applicable to the companies which produce multi‐products in a situation in which market demand exceed the company's production capacity.

Originality/value

This is the first time that the WPM of AHP/TOC has been used to maximize the product throughput. Instead of calculating $return per constraint minute, it decides the priority of product 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.

Citation

Ray, A., Sarkar, B. and Sanyal, S. (2008), "Outsourcing decision under Utopian environment", Journal of Applied Accounting Research, Vol. 9 No. 3, pp. 181-191. https://doi.org/10.1108/09675420810919739