Analyzing the Effects of Buyer's Outsourcing Policies on Supplier's Performance Using the System Dynamics Approach

ABSTRACT: Outsourcing is one of the most important activities in many organizations. It involves at least two organizations, which have similar goals and a relatively long relationship with each other. The active presence of several companies with the individual objectives that each seeks to achieve them, creates a complex system. The purpose of this paper is to use modeling and simulation to identify and define appropriate outsourcing policies affecting supplier’s performance which sometimes get plagued by poor delivery condition, low productivity rate, decreased financial level etc. System dynamics modeling is used as a managerial approach in order to illustrate the existing relations among buyer’s outsourcing policies and supplier’s performance indicators. Using this model, polices are defined and set so that suitable performance levels are resulted. The main finding of this research is that having a short-term approach to outsourcing policies will lead to poor performances by suppliers. The long-term attitude towards suppliers will have a significant effect on improving the performance of suppliers.