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Outsourcing Essay

2111 words - 9 pages

Total Customer Satisfaction Depends on Supplier Performance

Strategic Sourcing
• Strategic sourcing: the development and management of supplier relationships to acquire goods and services in a way that aids in achieving the immediate needs of the business • In the past, sourcing was another name for purchasing • As a result of globalization, sourcing implies a more complex process suitable for products that are strategically important

The Sourcing/Purchasing Design Matrix

Strategic Sourcing Continued
• A request for proposal (RFP) is used for purchasing items that are more complex or expensive and where there may be a number of potential vendors • Vendor managed inventory: ...view middle of the document...

Figure 1. Order Stream

Huang at el. (1996), Working paper, Philips Lab

The Bullwhip Effect and its Impact on the Supply Chain

Figure 4. POS Data After Removing Promotion & Trend

Higher Variability in Orders Placed by Computer Retailer to Manufacturer Than Actual Sales

Lee, H, P. Padmanabhan and S. Wang (1997), Sloan Management Review

Increasing Variability of Orders Up the Supply Chain

Lee, H, P. Padmanabhan and S. Wang (1997), Sloan Management Review

We Conclude ….
• Order Variability is amplified up the supply chain; upstream suppliers face higher variability.

What are the Causes….
• Promotional sales • Inflated orders - IBM Aptiva orders increased by 2-3 times when retailers though that IBM would be out of stock over Christmas - Same with Motorola’s Cellular phones • Demand Forecast • Long cycle times • Order Batching

The Bullwhip Effect: Managerial Insights
• Exists, in part, due to the retailer’s need to estimate the mean and variance of demand. • The increase in variability is an increasing function of the lead time. • The more complicated the demand models and the forecasting techniques, the greater the increase. • Centralized demand information can reduce the bullwhip effect, but will not eliminate it.

How to Minimize Bullwhip Effect?


Coping with the Bullwhip Effect
• Reduce Variability and Uncertainty - POS - Sharing Information - Year-round low pricing • Reduce Lead Times - EDI - Cross Docking • Alliance Arrangements – Vendor managed inventory – On-site vendor representatives

How Does Benetton Cope with the Bullwhip Effect?
1. Integrated Information Systems • Global EDI network that links agents with production and inventory information • EDI order transmission to HQ • EDI linkage with air carriers • Data linked to manufacturing 2. Coordinated Planning • Frequent review allows fast reaction • Integrated distribution strategy

Supply Chain Volatility Amplification: Machine Tools at the tip of the Bullwhip
% Chg. GDP % Chg. Vehicle Production Index % Chg. Net New Orders Machine Tool Industry 80

“We are experiencing a 100-year flood.” J. Chambers, 4/16/01
60 % Change, Year to Year



0 1961 -20



















"Upstream Volatility in the Supply Chain: The Machine Tool Industry as a Case Study," E. Anderson, C. Fine & G. Parker Production and Operations Management, Vol. 9, No. 3, Fall 2000, pp. 239-261.

Volatility in the Electronics & Semiconductors Supply Chain
100.00 80.00 60.00

% Change, Year-to-Year

20.00 0.00 1961 -20.00 -40.00 -60.00 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001


Worldwide Semiconductor Manufacturing Equipment Sales Worldwide Semiconductor Shipments Electronics, Computing and Communications Equipment Output GDP World GDP USA

Type of Products and Type of Supply Chain

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