Global Sourcing Strategies Research Articles

Implementing a centralised procurement strategy for global supplier base management

This research investigates how a global engineering firm can implement a centrally managed, globally integrated supplier base. Based on in-depth evidence from a single longitudinal case study, we identify different approaches for the case company to integrate their local supplier base into a multi-step process: first, the company attempted supplier base reduction by ‘cutting the tail’ off a vast supplier base. Second, they prioritised suppliers based on groupings and importance across the global supply network. Third, the case company tested supplier relationship management with a small selection of suppliers, resulting in improving their own delivery performance. Based on these insights, we propose a conceptual framework of global supplier base management. We discuss this framework in relation to the supply management and global operations literature. This paper contributes to the operations and supply chain management literature by offering an initial understanding for global sourcing strategies through integrating a previously localised supplier base into a globally consistent approach to managing the supplier base.

Relocation, innovation, and the difference that firm size makes: Insights for global sourcing strategies of SMEs

Relocation, innovation, and the difference that firm size makes: Insights for global sourcing strategies of SMEs

Unilever Global Sourcing and Purchasing Strategies: A Case Study of Trade and Logistics between the EU and UK Post-Brexit

Unilever Global Sourcing and Purchasing Strategies: A Case Study of Trade and Logistics between the EU and UK Post-Brexit

Leveraging global recombinant capabilities for green technologies: the role of ethnic diversity in MNEs’ dynamics

The growing environmental pressure and the parallel policy push on eco-innovations are making the generation of green technologies more and more profitable, given the expansion of existing markets and the creation of new ones. MNEs may show a competitive advantage in this context because of their global knowledge sourcing strategies that increase heterogeneity and variety in firms’ innovation processes. We accordingly argue that the inventors’ teams involving higher ethnic diversity are more likely to successfully generate green inventions due to their idiosyncratic experiences and diversified knowledge bases. We rely on USPTO data from an ethnic patenting database covering US-based MNEs from 1980–2009. We find that R&D teams featured by higher levels of ethnic diversity among the US-based inventors correlate with a higher probability of green patenting, but the relationship follows a non-linear pattern. Also, ethnic diversity is found to moderate the effect of recombinant capabilities on the generation of new green technologies. Our results bring implications for the strategic management of inventors’ teams by multinationals willing to run the green patent race and policymakers facing the climate change challenges.

The impact of tariffs and price premiums of locally manufactured products on global manufacturers' sourcing strategies

The past decade has seen significant pressure to return manufacturing to developed countries. Such movements call for import tariffs to be raised and consumers' valuation of products made from locally sourced components increased. These factors are believed to stimulate firms operating in a single market to source components locally. However, it is not clear that they are equally effective for multinational firms that produce and sell products in multiple markets. To enrich the understanding of this issue, we build a game‐theoretical model to analyze the sourcing decisions of a global manufacturer that maintains production sites and sells products in both domestic and foreign markets in a competitive environment. The firm can choose either to source components from suppliers located in the same markets as the manufacturing sites to gain tariff savings and a price premium from consumers' higher valuation, or to source all components from a single foreign supplier to obtain a lower sourcing cost. We find that the structure of the global supply chain plays a critical role in the firm's sourcing strategy. Consumers' higher valuation of locally manufactured goods always promotes local sourcing. Raising tariffs, however, might backfire and discourage local sourcing because of the firm's global supply chain structure and the foreign supplier's strategic response to higher tariffs. Finally, local sourcing may reduce the consumer surplus even though consumers place a higher value on locally manufactured goods. This paper sheds light on recent movements to return manufacturing to developed countries and demonstrates the importance of taking the manufacturer's global supply chain structure and vertical interaction with suppliers into account.

From catch to plate

From catch to plate

Global value chains and servicification of manufacturing: Evidence from firm-level data

Recent literature on global value chains (GVCs) has mainly focused on manufacturing firms’ global sourcing and investment strategies. Our question here is that, if the manufacturing firms established foreign manufacturing plants and engaged in sourcing inputs and exporting outputs, have they changed their domestic employment composition toward service workers? This is what we call servicification of manufacturing firms in this paper. To answer this question, using Korean firm-establishments matched data, we examine changes in the shares of service employment in manufacturing firms from 2008 to 2013, when those firms are participating in both import-and-export and foreign direct investment (i.e., GVC firms). We find that the two-way trading firms that own manufacturing plants in foreign countries—and particularly in nearby foreign countries—have changed their domestic employment structures to increase the number of service workers they employ. Moreover, the relatively greater increase in the share of R&D workers than of wholesale-and-retail workers serves as further evidence of the servicification of domestic manufacturing. Overall, our findings suggest that Korean firms who engage in GVCs through both trade and foreign direct investment have reorganized domestic labor structure to be able to provide high value-added headquarter services for their manufacturing plants that are closely located in foreign countries.

Global Sourcing Strategies: A Framework for Lean, Agile, and Leagile

The main purpose of this paper is to develop a framework for utilization of lean, agile, and leagile strategies in the supply chains, where the core idea of the framework is to improve the global sourcing practices. Based on in-depth interviews with supply chain professionals and grounded theory approach, we constructed a framework of global sourcing improvement to support better utilization of lean, agile, and leagile strategies, which we believe can help the supply chains worldwide to act better, especially in various difficult conditions and sustain their business accordingly. Our proposed framework also contributes to the UN’s Sustainable Development Goals, since the core concept of the framework is to establish a new organization under the umbrella of the UN to improve the global sourcing and consequently the usage of supply chain strategies accordingly. The applicative part of the paper reveals characteristics of new developed framework, ranging from its purpose and aims, structure, key processes, functions, and its financing. Along with validation of the framework are presented benefits for society, industry, and global economy. Additionally, the paper also reviews the impact of the current health and economic crisis caused by COVID 19, on usage of the three supply chain strategies namely; lean, agility, and leagility to see how they can work in the difficult time, as COVID 19.

Offshore versus Onshore Sourcing: Quick Response, Random Yield, and Competition

Motivated by the recent reshoring initiatives, we study firms’ global sourcing strategies from two different supply sources, offshore and onshore supply bases, under supply and demand uncertainty. Interestingly, even though onshore sourcing has a significant benefit from market responsiveness, offshore sourcing having no cost advantage also provides benefits in the presence of yield uncertainty and market competition. If competing firms commit single sourcing, one firm may choose inferior offshore sourcing to dampen competition. When a dual‐sourcing option is available, firms always utilize dual sourcing, offshore sourcing as well as onshore sourcing, for risk pooling purpose. Our result shows that risk pooling is an essential driver in supplier selection in that the need for dual sourcing cannot be eliminated by other influential factors (e.g., responsiveness and competition effect). However, we find that firms may suffer from a dual‐sourcing option under competition. This contrasts with the conventional wisdom that dual sourcing benefits firms in the presence of supply uncertainty. When it comes to order allocation, market responsiveness is not necessarily an order winner since it does not lead to a larger order to an onshore supplier if demand is guaranteed above a certain level. Under competition, firms’ order allocation is mainly determined by supply yield correlations.

Global Sourcing in Fast Fashion Retailers: Sourcing Locations and Sustainability Considerations

For decades, apparel companies have profited from moving their manufacturing to low-cost countries and several academic studies have focused on understanding whether low-cost locations could support optimal supply chain configurations. However, the exploitation of resources in foreign sourcing countries often resulted in many environmental and social issues and apparel companies became progressively more concerned about the negative exposure that they could face with a limited supply chain transparency. Therefore, this paper aims at investigating global sourcing strategies of fast fashion retailers in order to understand whether the decision criteria influencing sourcing locations have changed over time to also embrace sustainability considerations. Drawing on a literature review on sustainability in fashion supply chains, offshore outsourcing, and fast fashion global sourcing, a new theoretical framework concerning fast fashion retailers’ sourcing locations is proposed together with a content analysis of their reports. The findings show that fast fashion retailers identify sustainability as a key element to consider in selecting sourcing locations since sustainability issues at suppliers’ factories may represent relevant hidden costs. Moreover, actions aimed at checking and improving sustainable practices in global sourcing policies are proven to support the development of a strategic sourcing reputation for their fast fashion brands.

Global Sourcing Strategies and the Dynamics of Cluster Knowledge Sharing: An Evolutionary Perspective

As clusters have increasingly become more globalized, an important question is whether this development changes the knowledge dynamics of clusters. This article addresses how cluster companies’ global sourcing strategies affect cluster knowledge dynamics and innovation performance. The article combines insight from the literature on global sourcing and evolutionary theory with empirical findings from a regional cluster that has experienced the intensified globalization of cluster value chains over the last few decades. The case study demonstrates that the path-dependent characteristics of global sourcing strategies may lead to changes in cluster knowledge dynamics. Building on evolutionary theory and a case study from the maritime cluster in Norway, three propositions are presented, highlighting the path-dependent characteristics of global sourcing. A consequence of this path-dependency is that, over time, manufacturing capabilities will be lost when manufacturing is sourced out of the region in which it was previously located. This may create a barrier for the later backshoring of manufacturing. JEL Codes: O31, R110

The curvilinear effect of manufacturing outsourcing and captive-offshoring on firms' innovation: The role of temporal endurance

This paper aims to contribute to the open debate in the literature on the effect of global sourcing strategies on firm performance by studying the consequences of manufacturing outsourcing and captive-offshoring for the innovation capability of the firm. We grounded our hypotheses based on the outsourcing and offshoring literature and by narrowing our focus to the effects of persisting in their adoption over time. We tested our hypotheses using data from a sample of 368 manufacturing companies listed on NASDAQ stock market. The paper provides theoretical explanations and empirical findings for the inverted U-shaped influence of keeping doing captive-offshoring on new product development performance, in contrast to outsourcing, which shows a negative linear relationship. The conclusion is that managers should be aware of the consequences of outsourcing and captive-offshoring manufacturing, either in a spot manner or over a long period. They should eventually search for equilibrium between adopting captive-offshoring for too few years vs. too many years, by monitoring year by year its effects to avoid adaptation processes and corporation hollowing, and evaluate the opportunity to re-shore manufacturing.

The magnitude of a product recall: offshore outsourcing vs. captive offshoring effects

The escalation in product recalls in recent years is attributed to the rise of globalisation and associated challenges of offshoring. Extant SCM research suggests that product recalls have a significant negative impact on financial performance, but gaps exist relative to the managerial actions to minimise their impact. Recall response strategies have become more important in the press, given that a single recall may result in the mandatory withdrawal of millions of products from the market, with firms incurring enormous logistics costs and brand damage. In this study, we address this gap in the research, and using a measure of product recall defined as the volume of products withdrawn from the market due to product quality failure. We explore the scale of the recall in the context of pharmaceutical sector global sourcing strategies, exploring whether the variation in global sourcing decisions not only increases the likelihood of a recall, but also influences the capability to minimise the total cost of recall. Our results suggest that offshore outsourcing and captive offshoring have opposite effects in terms of their influence on the magnitude of product recall. We summarise the implications through a compelling set of insights for future global sourcing strategy research themes.

The Impact of Sustainable Sourcing on Customer Perceptions: Association by Guilt from Scandals in Local vs. Offshore Sourcing Countries

This study analyzes whether customer perceptions towards sustainability are affected by a company’s country of origin and sourcing strategies. This study builds upon the literature regarding customer interest in sustainable products. It adds the country of origin to the link between customer and company, and analyzes if and how customer perceptions change when they are introduced to a sustainability scandal, hence analyzing possible ‘association by guilt’. It compares their reactions to offshore scandals and to local scandals, therefore taking psychic distance as an important variable into consideration. Customer perceptions of company sustainability was found to have an impact on purchasing behavior. Findings show that perceptions are influenced by psychic distance. Furthermore, companies should take into account the risk of association by guilt when developing their global sourcing strategies.

Competition and coordination in a three-tier supply chain with differentiated channels

Motivated by the recent trend in global sourcing and multi-channel strategies, we analyze a supply chain in which a manufacturer distributes a product through two distributors (channels) to a retailer whose demand is uncertain. The two distributors differ in terms of their commitment to offering return credits, and they compete by charging different wholesale prices to the retailer. For this dual-channel supply chain, we derive the retailer’s optimal ordering policy, characterize the pricing equilibrium for the two distributors, and investigate the manufacturer’s optimal pricing strategy. We show that the dual-channel system benefits the manufacturer and the retailer if the level of demand uncertainty exceeds a threshold and that the competition between the two distributors leads to the coordination of the downstream supply chain (the two distributors and the retailer). We further demonstrate that the introduction of a second channel may entail Pareto gains for all players, including the incumbent distributor, compared to a single-channel system. This insight sheds some light on the increasing prevalence of dual channels in practice. The differentiation of the two channels is the key to the success of the dual-channel system.

Technology and Production Fragmentation: Domestic versus Foreign Sourcing

This article provides direct empirical evidence on the relationship between technology and firms’ global sourcing strategies. Using new data on U.S. firms’ decisions to contract for manufacturing services from domestic or foreign suppliers, I show that a firm’s adoption of communication technology between 2002 and 2007 is associated with a 3.1 point increase in its probability of fragmentation. The effect of firm technology also differs significantly across industries; in 2007, it is 20% higher, relative to the mean, in industries with production specifications that are easier to codify in an electronic format. These patterns suggest that technology lowers coordination costs, though its effect is disproportionately higher for domestic rather than foreign sourcing. The larger impact on domestic fragmentation highlights its importance as an alternative to offshoring, and can be explained by complementarities between technology and worker skill. High technology firms and industries are more likely to source from high human capital countries, and the differential impact of technology across industries is strongly increasing in country human capital.

Benders decomposition for a strategic network design problem under NAFTA local content requirements

Global production and sourcing strategies of multinational corporations are strongly influenced by the increasing number of Free Trade Agreements (FTAs). Based on the special local content requirements of the North American Free Trade Agreement (NAFTA) for automotive goods, the impact on strategic network design decisions is investigated. The presented model explicitly integrates the different NAFTA legal options to calculate the local content for automotive goods. Furthermore, it considers the possibility to underachieve the local content requirement and to pay penalty duties for NAFTA cross-border deliveries instead. Plant fixed costs have a significant impact on the local content fulfillment and have to be allocated in accordance with the actual plant utilization and the different local content calculation options. Due to the resulting non-linearity of the mixed-integer program, a solution algorithm based on Benders decomposition is presented. In addition, we introduce multiple Benders cuts to improve the efficiency and applicability to real-world planning problems. Compared to piecewise linearization approaches, the run-time can be improved significantly. In a numerical study, the impact of local content requirements on the strategic network design is shown and the different NAFTA options to calculate the local content for automotive goods are compared with each other. Furthermore, computational experiments are performed to evaluate the applicability and efficiency of Benders decomposition.

The role of critical incidents in the development of global sourcing-results of an in-depth case study

Since the early 1980s companies have tried to implement coherent global sourcing strategies. Research has identified many benefits and motives for global sourcing. However, it remains unclear how companies are reaching higher levels of global sourcing. We employed a single embedded case study at Royal Brinkman (leader in the Dutch horticulture industry) to explore the role of critical incidents in the development of global sourcing strategies. Company documents and interviews revealed which critical incident had a substantial impact on the development of global sourcing strategies. Apparently, critical incidents can initiate and further stimulate global sourcing. Global sourcing decisions were mainly an opportunistic response to unforeseen events. Reactive strategies appear to govern global sourcing despite stated intended strategies. A proactive strategy does not appear to be a requirement to make progress in the global sourcing stages model.

Book Reviews

James Rauch of University of California, San Diego reviews “Global Production: Firms, Contracts, and Trade Structure,” by Pol Antràs. The Econlit abstract of this book begins: “[vii] Based on previously published articles and the CREI Lectures in Macroeconomics delivered in Barcelona in June 2012 and aimed at graduate students and researchers interested in recent developments in international trade, [front flap] provides an overview of the issues facing multinational companies and their global sourcing strategies. [27] Addresses the various ways in which the contracting environment shapes the location and internalization decisions of firms in the global economy. [TOC] Discusses [3 et seq.] goods that are made in the world — the effects of the information and communication technology revolution, the reduction of manmade trade barriers, and global participation in the process of globalization; [28] workhorse models — an intellectual history and overview of firm-level analysis; [59] contracts and export behavior — simple imperfect-contracting variants of the Melitz model; contracts and global sourcing — contractual frictions in the two-country model of global sourcing; contracts and sourcing — evidence and the multicountry version of global sourcing; the transaction-cost approach; the property-rights approach; and internalization — empirical evidence. [back flap] Antràs is Robert G. Ory Family Professor of Economics at Harvard University.”

Technology and Production Fragmentation: Domestic versus Foreign Sourcing

This paper provides direct empirical evidence on the relationship between technology and firms’ global sourcing strategies. Using new data on U.S. firms’ decisions to contract for manufacturing services from domestic or foreign suppliers, I show that a firm’s adoption of communication technology between 2002 to 2007 is associated with a 3.1 point increase in its probability of fragmentation. The effect of firm technology also differs significantly across industries; in 2007, it is 20 percent higher, relative to the mean, in industries with production specifications that are easier to codify in an electronic format. These patterns suggest that technology lowers coordination costs, though its effect is disproportionately higher for domestic rather than foreign sourcing. The larger impact on domestic fragmentation highlights its importance as an alternative to offshoring, and can be explained by complementarities between technology and worker skill. High technology firms and industries are more likely to source from high human capital countries, and the differential impact of technology across industries is strongly increasing in country human capital.