The below two global supply chain strategy examples illustrate the decision makers and decision variables needed to ensure the chosen solution is optimal for the business.
A typical question raised is whether to source goods internationally or domestically. In most instances sourcing internationally from low-cost manufacturing countries appears to provide the lowest price. However, when variability from lead time of long, global supply chains becomes too volatile and appears to significantly affect service levels with potential stock outs, the domestic sourcing option looks less risky. Whereas, some may not want to hold inventory and prefer the flexibility of pushing the risk and ownership of moving goods internationally to the supplier.
From a key stakeholder perspective, influential decision maker’s input can significantly impact the sourcing strategy. If a company is driven by mostly autonomous merchants of an organization, their objectives would likely be weighted heavier for making sure stock outs never happen. Conversely, if an organization is driven by enterprise financial performance the sourcing decision would tilt towards minimizing the amount of time working capital is locked up in the supply chain. Ultimately, the sourcing decision point can be distilled down to whether the unit cost is lower for the buyer or seller, but deciding on how to calculate the lead time and inventory costs will be determined by the nature of the company and have an impact on the total results.
Lastly, for a new product being sourced the following decision makers’ participation should be considered for a broader point of view on costs: global sourcing, finance, IT, logistics procurement, legal, risk, brokerage and logistics service providers.
Challenging the basic global supply chain distribution network can be, well, a challenge. When companies focus on optimizing their networks for substantial cost and time savings, they are forced to widen their analysis outside of their own organization’s network. The optimal result would increase control, visibility, on time delivery while decreasing costs.
The buyer and supplier need to agree to analyze and design a new distribution program with their logistics service provider, which would be an alternative to taking ownership of goods at origin as well as a vendor managed inventory (VMI) model. It would be conceptually similar to DC bypass and merge-in-transit programs, with the addition that the supplier also leverages the buyers’ transportation rates and destination logistics services.
For a change of this magnitude, the buyer has to ensure its merchants are comfortable with altering their current processes. You need to demonstrate and prove flexible allocation will be possible and lead times will be reliable. This enables goods to be allocated and distributed while still in transit, instead of waiting for receipt of goods into physical inventory.
The result is that the buyer will not have to own the inventory until an order is made. At this time the ownership changes. This also eliminates the need for the supplier’s destination distribution process and costs for physical cargo handling and increases speed to market and payment.