Risk-averse outsourcing strategies for optimal intellectual property protection

This paper presents an extension of our previous work on optimal allocation of external suppliers to manage the risk of leakage in the intellectual property (IP) of a product. The optimal outsourcing decision problem is modeled as a bi-objective minimization problem with one objective being the estimated risk of loss of IP of a product due to outsourcing (IP leakage) and another being manufacturing cost of the product. A number of extensions are made in the problem formulation, including 1) unified probabilistic modeling of IP loss, 2) consideration of manufacturing process sequence to model the effect of partial observation on the compromise by a supplier, 3) modeling nonlinear effects on the increase in the probability of compromise by a supplier performing (and observing) multiple manufacturing processes, and 4) generalization to multi-supplier cases. A case study on a hinge mechanism for a cellular phone is presented, where a multi-objective genetic algorithm is used to generate the Pareto optimal supplier allocations exhibiting the trade-offs between the two objectives.