Coordinating Investment, Production, and Subcontracting
Management Science
Flexible and Risk-Sharing Supply Contracts Under Price Uncertainty
Management Science
Outsourcing information systems: drawing lessons from a banking case study
European Journal of Information Systems
Coordination and Flexibility in Supply Contracts with Options
Manufacturing & Service Operations Management
Supply Contracts, Profit Sharing, Switching, and Reaction Options
Management Science
Computers and Operations Research
Vendor selection in outsourcing
Computers and Operations Research
Optimizing vendor selection in a two-stage outsourcing process
Computers and Operations Research
Procuring Fast Delivery: Sole Sourcing with Information Asymmetry
Management Science
Outsourcer selection and order tracking in a supply chain by mobile agents
Computers and Industrial Engineering
Call Center Outsourcing Contract Analysis and Choice
Management Science
Call Center Outsourcing: Coordinating Staffing Level and Service Quality
Management Science
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Because outsourcing incurs hidden costs at the preparation stage and future profits are uncertain, outsourcing immediately is not always optimal. Thus, this paper studies when the optimal time to outsource is, by proposing a real option model. The timing strategy takes into account a firm's effort at the preparation stage and an outsourced proportion, because ex post future profits and consequently the optimal time are affected by how well prepared the outsourcing is and how large proportions a firm outsources. Based on the model, this research provides managerial implications about how outsourcing timing strategies should vary when outsourcing environments such as market uncertainty changes and a firm's effort. Our model shows that a firm can outsource earlier when an investment (effort) at the preparation stage is more efficiently made, when market becomes more stable, when it can expect higher marginal profits from the outsourcing, when it can outsource more proportion. Also, by comparing a widely used net present value model to our real option model, we show that the traditional method underestimates a firm's value for outsourcing and misleads a firm to outsource earlier. Finally, we provide a descriptive framework for a decision support system.