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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
Engi
neer
ing
& P
rogr
am
Man
agem
ent
Engi
neer
ing
& P
rogr
am
Man
agem
ent
BOM DefinedBOM Defined
Purc
hasi
ng P
rogr
am M
anag
emen
t (P
PM),
Mat
eria
ls P
lann
ing
&
Logi
stic
s
Purc
hasi
ng P
rogr
am M
anag
emen
t (P
PM),
Mat
eria
ls P
lann
ing
&
Logi
stic
s
Sourcing Strategy Determined
Sourcing Strategy Determined
Com
mod
ity P
urch
asin
g,PP
M,
Capa
city
Pla
nnin
gCo
mm
odity
Pur
chas
ing,
PPM
, Ca
paci
ty P
lann
ing
Suppliers ChosenSuppliers Chosen
2
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
II IIII
Prob
abili
ty o
f Dis
rupt
ion
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