On the optimality of single-item, incremental cost rules for the make-buy decision

Published

Journal Article

Decision rules for the make-buy decision most often assume the form of single-item, incremental cost rules which, for application, require decisions to be made for each item in isolation from all others. While it has been recognized that such decision rules may be non-optimal in situations where equipment capacity limits exist, the literature has not considered other cases where non-optimality arises. The purpose of this paper is to use linear programming as a framework for evaluating the optimality of single-item, incremental cost rules. The major conclusion of this paper is that the presence of any type of binding constraint in the planning problem, regardless of its origin, renders a single-item decision rule potentially non-optimal. A set of optimal screening decision rules is developed to be used in conjunction with a linear programming model for make-buy decisions in cases where such binding constraints exist. © 1971 Taylor & Francis Group, LLC.

Full Text

Duke Authors

Cited Authors

  • Burton, RM; Laughhunn, DJ

Published Date

  • January 1, 1971

Published In

Volume / Issue

  • 16 / 4

Start / End Page

  • 227 - 246

Electronic International Standard Serial Number (EISSN)

  • 1547-2701

International Standard Serial Number (ISSN)

  • 0013-791X

Digital Object Identifier (DOI)

  • 10.1080/00137917108902690

Citation Source

  • Scopus