Optimal Outsourcing for Intellectual Property Protection and Production Cost Minimization

Abstract

This paper presents a methodology for optimal outsourcing of products. Outsourcing of products can have the advantage of reducing the production cost, but often causes a risk that important technology may leak and get used by competitors. To help reduce the risk of intellectual property (IP) leakage, a model proposed in this paper assumes that it is possible to separate some of the important geometrical features on some of the product parts that are outsourced, and then manufacture them in-house. The model estimates the fraction of IP-value that is subject to risk of leakage based on patent claims and how they relate to the outsourced parts and/or features. Production cost is modelled by assuming a base cost for manufacturing parts in-house, and then a discount rate is applied if the decision to outsource is made. Separation of geometrical features from manufactured parts introduces additional cost, which is modelled as an overhead if the decision to separate features is made. The outsourcing management process is then viewed as a two-objective problem, with the objectives being the minimization of both the fraction of IP-value at risk of leakage, as well as the production cost. A case study of an auto-slide-hinge mechanism is presented, in which the two-objective optimization problem is transformed into a single-objective constrained problem. Genetic algorithm is then applied iteratively on the problem in order generate the Pareto-plot that visualizes the trade-offs between the two objectives.