MBA6221 Module 9 Strategic Sourcing Module

Scope: Focus on global supply chain pricing and sourcing decisions.
Guest Speaker: Kevin Linderman is leading this module, presenting various concepts through videos and discussions.
Content Structure:
- Value chain ownership vs outsourcing
- Production location decisions
- Influencing factors: industry structure, demand, supply landscape, sourcing cost differentials
Objective: Understand strategic sourcing and operational decisions in an organizational context.

Value Chain Ownership vs Outsourcing:
- Deciding which parts of the value chain to oversee or delegate to external suppliers.
Production Locations:
- Consider factors like proximity to demand, cost advantages of different regions, and capability advantages.
Sourcing Function Operations:
- Contrast between operational purchasing decisions and strategic sourcing.

Focus: Analyzing sourcing decisions for automotive glass manufacturing.
Analysis Variables:
- Costs comparison (e.g., manufacturing in China vs. the US)
- Other cost considerations beyond labor (e.g., raw materials, overhead).
Learning Outcomes:
- Gain appreciation for different cost structures and the decision-making process for sourcing managers.

Evolution of Sourcing:
- Shift from tactical purchasing roles to strategic sourcing functions over the past two decades.
- Importance of globalization in shaping sourcing decisions (insourcing vs outsourcing).

Vertical Integration:
- Example: Henry Ford’s River Rouge factory, showcasing total control over the production process.
- Advantages include cost reduction, increased control, visibility, and quality management.
Outsourcing:
- Examples include Nike and Apple, which focus on branding and product development while outsourcing manufacturing.
- Advantages:
- Labor arbitrage due to cost differences across countries.
- Pooling demand, tax advantages, and location economies.

Labor Costs: Comparison of labor expenses across regions and their impact on total costs.
Material Sourcing: Understanding how material costs vary and their implications for production efficiency.
Location Economies: Benefits derived from specific regional advantages that support certain industries, such as medical devices.
Currency Rates and Tax Policies: Influence on where firms choose to locate their production facilities.

Key Questions:
- Make or Buy?: Assessing if the company should produce internally or source externally.
- Evaluate costs vs strategic reasons for maintaining certain capabilities in-house.
Diverse Structures: Organizations such as Procter & Gamble utilize a strategic sourcing approach. Sourcing decisions can impact multiple business units, making it essential to unify strategies across units to leverage spending efficiencies.
Emergence of Leaders: Importance of sourcing managers and leaders in integrating sourcing strategies effectively.

A comprehensive understanding of:
- The evolution from tactical purchasing to strategic sourcing.
- Distinction between ownership decisions and location choices in strategic sourcing.
- Framework elements, balancing governance costs vs coordination costs, demand pooling opportunities, and scale economies.
Illustrations through case studies, and real-world examples provide context and practical insight into sourcing decisions.

Boundary Management: Managing relationships with suppliers across organizational and national boundaries presents unique challenges.
Coordination Costs: Increasing complexity in communication and management across diverse environments can inflate costs and impact efficiency.
Continuous Learning: Companies must adapt to changing market conditions and reevaluate sourcing strategies regularly to stay competitive.

A thorough knowledge of sourcing decisions is critical for strategic planning, operational efficiency, and ultimately the success of the firm in a global market. Understanding when to insource or outsource, as well as how to manage those relationships effectively, is paramount for sourcing managers today.