Selecting Transportation Modes for China Imports

Jackie Chen, vice president of China Imports, was look­ing to design a framework to select transportation modes for various products imported from China to the United States. His basic options were to either use air freight or ocean shipping in 20-foot containers. Air freight was faster and more reliable, but ocean shipping was much

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The Role of Sourcing in a Supply Chain

Purchasing, also called procurement, is the process by which companies acquire raw materials, components, products, services, or other resources from suppliers to execute their operations. Sourcing is the entire set of business processes required to purchase goods and services. For any supply chain function, the most significant decision is whether to outsource the function

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In-House or Outsource in a Supply Chain?

The decision to outsource is based on the growth in supply chain surplus provided by the third party and the increase in risk incurred by using a third party. A firm should consider outsourcing if the growth in surplus is large with a small increase in risk. Performing the function in-house is preferable if

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Examples of Successful Third-Party Suppliers

The assembly of consumer electronics is an activity that was largely performed in-house until the 1990s. Today, however, assembly is mostly outsourced by original equipment manufacturers (OEMs) such as Apple. In the 1990s, Macintosh computers were assembled at an Apple factory. Today, Apple tablets and smartphones are all assembled by electronics manufacturing service (EMS)

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Total Cost of Ownership in a Supply Chain

When making the outsourcing decision or comparing suppliers, many firms make the fundamental mistake of focusing only on the quoted price, ignoring the fact that many factors affect the total cost of using a supplier. For instance, suppliers have different replenishment lead times. Does it pay to select a more expensive supplier with a

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Supplier Selection in a Supply Chain – Auctions and Negotiations

Before selecting suppliers, a firm must decide whether to use single sourcing or multiple suppli­ers. Single sourcing guarantees the supplier sufficient business when the supplier must make a significant buyer-specific investment. The buyer-specific investment may take the form of plant and equipment designed to produce a part that is specific to the buyer or

Sharing Risk and Reward in the Supply Chain

In this chapter so far, we have emphasized the fact that all sourcing decisions should be made with the goal of growing the supply chain surplus. In practice, however, many firms care less about growing the surplus and more about what share of the surplus they are able to capture. As firms gain greater

The Impact of Incentives When Outsourcing

As companies have outsourced more supply chain activities, it has become harder to align the goals of all parties involved. The misalignment of incentives often hurts supply chain perfor­mance. The $2.5 billion writedown of inventory by Cisco in 2001 is an example of the cost of misaligned incentives. Cisco outsourced production to contract manufacturers

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Designing a Sourcing Portfolio: Tailored Sourcing

When structuring a supplier portfolio, firms have many options regarding whom to source from and where to source from. With regard to the “whom,” a company must decide on whether to produce in-house or outsource to a third party. The company must also decide whether the supply source will be cost efficient or responsive.

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Making Sourcing Decisions in a Supply Chain in Practice

Use multifunctional teams. Effective strategies for sourcing result from multifunc­tional collaboration within the firm. A sourcing strategy from the purchasing group is likely to be relatively narrow and focus on purchase price. A strategy developed with the collaboration of purchasing, manufacturing, engineering, and planning is much more likely to identify the correct drivers of

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The Role of Pricing and Revenue Management in a Supply Chain

In Chapter 9, we discussed how short-term price promotions could be an effective tool to more profitably meet seasonal demand. In this chapter, we further build on the idea of using pricing as an important lever to increase supply chain profits by better matching supply and demand, espe­cially when there are multiple customer types

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Pricing and Revenue Management for Multiple Customer Segments in a Supply Chain

  A classic example of a market with multiple customer segments is the airline industry, in which business travelers are willing to pay a higher fare to travel on a specific schedule, whereas leisure travelers are willing to shift their schedules to take advantage of lower fares. Many similar instances arise in a supply

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Pricing and Revenue Management for Perishable Assets in a Supply Chain

Any asset that loses value over time is perishable. Clearly, fruits, vegetables, and pharmaceuti­cals are perishable, but this list also includes products such as computers and cell phones that lose value as new models are introduced. High-fashion apparel is perishable because it cannot be sold at full price once the season is past. Perishable

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Pricing and Revenue Management for Seasonal Demand in a Supply Chain

Seasonal peaks of demand are a common occurrence in many supply chains. Most retailers in the United States achieve a significant fraction of their annual sales during the month of December. One such example is Amazon. As a result of the seasonal peak, the requirement for picking and packing and transportation capacity at Amazon

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Pricing and Revenue Management for Bulk and Spot Contracts in a Supply Chain

Most firms face a market in which some customers purchase in bulk at a discount and others buy single units or small lots at a higher price. Consider an owner of warehousing capacity in a supply chain. Warehousing capacity may be leased in bulk to a large company or in small amounts to large

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Using Pricing and Revenue Management in a Supply Chain in Practice

Evaluate your market carefully. The first step in revenue management is to identify the customer segments being served and their needs. The goal is to understand what the customer is buying, as opposed to what you are selling. If an airline thinks of itself as only selling seats, it cannot use revenue management. It

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The Role of Sustainability in a Supply Chain

This book has focused on designing and operating supply chains with a goal of growing the sup­ply chain surplus. Each supply chain, however, is only a small part of the world in which it resides. Ultimately, the health and survival of every supply chain and every individual depend on the health of the surrounding

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The Tragedy of the Commons in a Supply Chain

In an influential article, Hardin (1968) described the tragedy of the commons as a dilemma aris­ing when the common good does not align perfectly with the good of individual entities. It is useful to study his example in somewhat greater detail. Consider a pasture that is open to all herders with cattle. Each herder

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Key Pillars of Sustainability in a Supply Chain

Sustainability in a supply chain can be viewed along three pillars—social, environmental, and economic. Major global corporations such as Walmart and Starbucks report their economic per­formance in their annual reports and their social and environmental performance in their global responsibility reports (also called corporate social responsibility reports). As we mentioned ear­lier, many actions taken

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Sustainability and Supply Chain Drivers

Opportunities for improving supply chain sustainability can be identified by matching the social (workforce, customer, society) and environmental (resource reduction, emission reduction, prod­uct innovation) pillars we have described with the various supply chain drivers discussed in this text. The goal is for every firm to measure its environmental impact for each driver along each of

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