Managing Multiple Outsourcing: Service Quality and Volume Issues

Abstract Service operations like call center operations and business processes are being outsourced to offshore locations because of many operational reasons including cost savings. The main trade-off is the lack of control on service quality. When multiple suppliers are operating and service requirements are allocated to one or another, differential quality level is especially being an irritant to the firm's customers. In our model, the firm uses the allocation of quantity to motivate the multiple suppliers so that the equilibrium service quality in the market equalizes over all suppliers. The buyer's customers are assured of the same consistent quality level regardless of which of the multiple suppliers their calls are routed to. We obtain optimal policies of both the buyer and the suppliers in a two-supplier market and also study an asymmetric information case.