Trade-offs in lean vs. outsourced supply chains

Abstract

Lean supply chain management is well established, effective in improving inventory control as well as leading to greater quality. Continuous improvement obtained from lean implementation is expected to lead to better learning, yielding added profitability over time. However, the growth of global supply chains lead to increased complexity and variability, which may not always favour the lean management style. Impact on total cost is often difficult to precisely estimate, in part due to high levels of uncertainty with respect to disaster and catastrophe, changing governmental regulation around the world, and in part due to increased variability from longer supply lines. We examine some of the cost impacts of lean systems vs. outsourcing policies with assumed purchasing cost advantages through simulation of a global supply chain with detailed inventory factors, and compare relative profit impact. These results are used to argue that in some circumstances strategic considerations such as lower purchasing cost can override short-term inventory savings obtained from lean systems.