Dual Sourcing Strategies and Network Design

Recently, I wrote about dual sourcing strategies in my SupplyChainDigest column.  The idea is that when firms try to decide if they should make a product in China or the U.S, they should also consider a dual sourcing strategy.

Professors Allon and Van Mieghem from Northwestern’s Kellogg School of Management have formalized this strategy in several papers and projects.

With this strategy, you can get the low cost benefit of China and the safety stock benefit of reacting to variability in the U.S.

But, there can be more to this strategy.  This discussion assumes that demand for this product is mostly in the U.S.  If demand for the product is world-wide, you need to use network design software to help determine where to make product for each market.  That is, do you make a product in each region of the world to avoid transportation costs or do you centralize production to take advantage of economies of scale.

The lessons we learned from dual sourcing still apply.  If it is better to make a product centrally because of economies of scale, then you may want to consider some local capability to handle the variability and reduce safety stock requirements.

This analysis is certainly more complex, but the extra effort can reduces costs and risks.

Modeling Political Risk in the Supply Chain

When we discuss supply chain risks, we often mention natural disasters, the changing price of oil, or something like a strike (at your facilities or at a port).

But, there are political risks to your supply chain.  The dramatic ones are the most obvious– like locating in a politically unstable country.  But, even in the US, changing laws and regulations can have an impact on your supply chain.  And, so you should add this category of risk to your reasons for better understanding network design and doing this type of analysis on an a more frequent basis.

I wrote more about this in my SupplyChainDigest column.


Panel Discussion with Sears, Caterpillar Logistics, and NAI Global Logistics

Last week, I had the opportunity to participate in a panel discuss at the Journal of Commerce’s Inland Ports conference in Oak Brook, IL.  The panel was moderated by Adam Roth of NAI Global Logistics and included Jeff Starecheski of Sears Holdings and Brent Lindstrom of Caterpillar Logistics Services.

In a previous post, we shared an article on seven reasons why you need to do a supply chain network design study.

On this panel, one of the questions that received a lot of attention was about how frequently you should do a study.  Some people tend to think that you need to do a study once every 4-5 years.

Interestingly, the consensus on the panel was that firms were doing major studies on a 2-year cycle with minor studies done on an ongoing basis.  Now, some investments are expected to last 10 years so not everything is open within a 2-year window, but firms find too much savings to ignore the structure of the supply chain.  There is no reason to wait five years for the supply chain to get out of sync.