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Kristin VincentKristin VincentThesis Advisor: Thesis Advisor: Charles H. FineCharles H. Fine

Costs, Risks and Variables Costs, Risks and Variables to Consider in Sourcing to Consider in Sourcing

Decision Models for Decision Models for Globally Dispersed Globally Dispersed

ManufacturersManufacturers

Sourcing Strategy DeterminationSourcing Strategy Determination

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Sourcing Strategy Determined

Sourcing Strategy Determined

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Suppliers ChosenSuppliers Chosen

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Many Global Sourcing OptionsMany Global Sourcing Options

•Global Supplier, Global Delivery

Option 1: 1 manyOption 1: 1 many

•Regional Supplier, Global Delivery

Option 2: few manyOption 2: few many

•Regional Supplier, Regional Delivery

Option 3: few fewOption 3: few few

•Local Supplier, Global Delivery

Option 4: many 1Option 4: many 1

•Local Supplier, Regional Delivery

Option 5: many few Option 5: many few

•Local Supplier, Local Delivery

Option 6: many manyOption 6: many many

•Combinatorial Sourcing Approach

Option 7Option 7

Regional Suppliers to Five Global Regional Suppliers to Five Global OEM Assembly Plants OEM Assembly Plants

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Global Sourcing to Five Global Global Sourcing to Five Global OEM Assembly Plants OEM Assembly Plants

Local Suppliers to Five Global Local Suppliers to Five Global OEM Assembly Plants OEM Assembly Plants

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Tooling vs. Freight CostsTooling vs. Freight Costs

Sourcing RisksSourcing Risks

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Sourcing Strategy Model GoalSourcing Strategy Model Goal

Cost ElementsCost Elements

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RisksRisks

Which Risks?Which Risks?

Enterprise Vulnerability CategoriesEnterprise Vulnerability Categories

Financial •Currency & Exchange Rate Fluctuation

•Economic Recession•Debt & Credit Rating•Credit Default•Industry Regulations Changes

Financial •Currency & Exchange Rate Fluctuation

•Economic Recession•Debt & Credit Rating•Credit Default•Industry Regulations Changes

Strategic•Loss of Intellectual Property

•Ethics Violations•Joint Venture and Alliance Relations

•Mergers & Industry Consolidation

Strategic•Loss of Intellectual Property

•Ethics Violations•Joint Venture and Alliance Relations

•Mergers & Industry Consolidation

Hazard•Building or Equipment Fire

•Terrorism & Sabotage

•Disease/Epidemic•Volcano Eruption•Hurricane or Typhoon

Hazard•Building or Equipment Fire

•Terrorism & Sabotage

•Disease/Epidemic•Volcano Eruption•Hurricane or Typhoon

Operations•Workplace Violence•Logistics Provider Failure

•Logistics Route Disruption

•Kidnapping•Extortion•IT system Failure

Operations•Workplace Violence•Logistics Provider Failure

•Logistics Route Disruption

•Kidnapping•Extortion•IT system Failure

Information Risks and CostsInformation Risks and Costs

Loss of Availability•Lost revenues •Transactions unavailable

Loss of Availability•Lost revenues •Transactions unavailable

Loss of Information Integrity•Regulatory penalties•Loss in confidence•Labor cost for restoring information integrity

Loss of Information Integrity•Regulatory penalties•Loss in confidence•Labor cost for restoring information integrity

Loss of Information Confidentiality•Market share loss

Loss of Information Confidentiality•Market share loss

IIIIII High Vulnerability

High Vulnerability

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ConsequencesSheffi, Yossi. (2005)

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VariablesVariables

The Good News?The Good News?

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ClockspeedClockspeed

““ClockspeedsClockspeeds are to business genetics what lifecycles are to are to business genetics what lifecycles are to human genetics.” Charles H. Finehuman genetics.” Charles H. Fine

Step Step 1•Benchmark fruit flies•Fast clockspeed industries or processes

Step Step 2

•Understand, map & assess supply chain•Organization•Technology•Capability

Step Step 3•Clockspeed and dynamic chain analysis

•Dependency loops•Double helix

Step Step 4

•Exploit and execute•Competency development dynamics•Make/buy•Tools for development and engineering of products or systems

ClockspeedClockspeed

Private Equity as Private Equity as ClockspeedClockspeed Equivalent of Equivalent of FruitflyFruitfly for for Strategic Sourcing Models Strategic Sourcing Models

5 5.2 5.4 5.6 5.8 6 6.2 6.4

Production

Value added

Non-PE

PE

The sample consisted of 8,596 country-industry-year observations between 1991 and 2007. Growth rates are annual percentages. (Bernstein, Lerner, Sørensen, & Strömberg, 2008)

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My Model of Cost, Risk and My Model of Cost, Risk and Variable Impact to Total CostVariable Impact to Total Cost

BlackBlack--ScholesScholes ModelModel

Volatility SmileVolatility Smile

Risk Volatility FrownRisk Volatility Frown