Applying New Variables to Existing Supply Management Decisions
Robert Wiedmer, Ph.D.
Arizona State University
Carlos Mena, Eng.D.
Nike Professor of Supply Chain Management
Portland State University
Mikaella Polyviou, Ph.D.
Arizona State University
Zachary S. Rogers, Ph.D.
Colorado State University
Srimathy Mohan, Ph.D.
Arizona State University
To be financially and operationally resilient, companies need to adopt sourcing strategies that ensure and balance efficiency and supply continuity. Such strategies require a comprehensive understanding of the costs associated with a sourcing strategy and the supply chain risks that can potentially influence those costs and supply continuity. Nevertheless, two issues have been observed in practice thus far.
Sourcing Strategy Concerns
First, traditional approaches that assist decision-makers when evaluating sourcing options, such as the unit-price model, the total landed cost (TLC) model, and the total cost of ownership (TCO), have proved insufficient. Such models do not allow supply managers to effectively respond to supply chain disruptions, including those triggered by the COVID-19 pandemic. These approaches consider the costs associated with sourcing decisions but overlook the risks.
Second, companies that consider risks as an “add-on” to their sourcing cost models largely assume that these risks uniformly impact them and their supply chains. This assumption can lead to ineffective supply risk management and resilience planning. Supply risks manifest at different levels of a company’s supply base (e.g., sourced parts, sourced products, or countries of origin) and through different tiers in a company’s supply chain (e.g., the firm itself as well as its suppliers, carriers, logistics service providers, or ports). However, there is little understanding of how the risks stemming from these multiple levels and tiers might influence flexible and resilient sourcing decisions. Furthermore, with globalization, the number of firms from different industries that rely on shared first- and upper-tier suppliers has increased significantly, leaving the downstream firms open to risks and disruptions that may stem from seemingly unrelated industries.
These multi-industry impacts driven by supply-based interdependence can be seen in wide-ranging disruptions, such as the issues with semiconductors or battery components. This multi-level and multi-tier perspective of supply risks becomes more relevant as supply chains continue to become more complex and companies within and across industries more interdependent.
Overlooked Risks and Data
The report Applying New Variables to Existing Supply Management Decisions identifies a list of overlooked yet important supply chain risks and publicly available data that can be used to assess those risks. The report then drills down specifically into one overlooked supply chain risk — the risk of supply chain interdependencies among different stakeholders. Five industry sectors (oil & gas, articles of iron & steel, textiles & apparel, footwear, and furniture) are used as case studies with data about U.S. imports from around the world to showcase how supply chain interdependencies can be assessed. These industry sectors were selected to allow a combination of commodities, different global footprints, and various types of manufacturing processes. However, the approach can be replicated in any industry involving global supply chains.
The approach provides a more holistic understanding of interdependencies at multiple levels and tiers of a company’s supply chain. This understanding leads to new insights into the balance of power between stakeholders in the supply chain, including buyers, suppliers, and logistics stakeholders (such as carriers and ports). A broader and more holistic understanding of these interdependencies can help supply managers make better decisions about structuring and orchestrating more resilient supply chains.
To access the full research report, Apply New Variables to Existing Supply Management Decisions, click here.
CAPS is a B2B nonprofit research center serving supply management leaders at Fortune 1000 companies. CAPS Research inspires leaders with profound discovery and executable strategies to shape the future of supply management. Research reveals the destination, benchmarking charts the course, and networking creates the path to transformation. All CAPS offerings are sales-free, bias-free, and practitioner-driven. CAPS was established in 1986 at the W. P. Carey School of Business at Arizona State University in partnership with the Institute for Supply Management. Learn more at www.CAPSResearch.org.
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