Capacity Management with the Option to Outsource Certain Business Processes

American companies account for a lion’s share of the global spending on Business Process Outsourcing (BPO), which is expected to touch $1 trillion by the end of this year. This article considers the capacity management problem faced by a firm with two types of timedifferentiated internal processes and the option to outsource. Urgent jobs require immediate processing and cannot be outsourced. Regular jobs may be completed within a maximum delay threshold and can be assigned to a vendor. All jobs are reviewed periodically. In each period the firm has an option to outsource some newly-arrived regular jobs. Onsite capacity can serve both regular and urgent jobs.