Centralized vs decentralized sourcing strategy for multi-tier automotive supply network

Avinash Dinkarrao Bagul and Indrajit Mukherjee

International Journal of Productivity and Performance Management, 2019, vol. 68, issue 3, 578-607

Abstract: Purpose - Multiple stages of procurement for a product in a supply chain (SC) altogether form a “multi-Tier” supply network. The purpose of this paper is to develop and verify a systematic solution approach to ascertain the realistic cost advantage of a coordinated centralized sourcing strategy as compared to an isolated decentralized sourcing strategy for a multi-tier supply network under demand uncertainty. Design/methodology/approach - The proposed systematic solution approach consists of seven steps to compare and contrast the cost advantage of a centralized coordinated sourcing strategy over a decentralized stage-wise sourcing strategy for a multi-tier supply network. A real-life automotive industry case analysis of two distinct products provides sufficient empirical evidence on the expected cost advantage of centralized coordinated sourcing strategy under demand uncertainty. Findings - The case analysis affirms the practicability of the proposed seven-step solution approach to determine the realistic cost advantage of coordinated sourcing. Research limitations/implications - The scope of this research is restricted to a single product and two-tier supply network analysis. This research work also considers a restrictive assumption of negligible coordination cost. Practical implications - The suitability of the proposed solution approach is verified using real-life case examples. This research provides theoretical insights and factual evidence to SC practitioners, so as to adopt a centralized sourcing strategy in a varied manufacturing environment. Originality/value - There is no evidence of a systematic step-by-step solution approach to determine the cost advantage of a coordinated sourcing strategy over an isolated decentralized sourcing strategy for a multi-tier supply network under demand uncertainty.

Keywords: Coordination; Supply network; Demand uncertainty; Multi-echelon inventory; Multi-tier; Order quantity allocation (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijppmp:ijppm-02-2018-0083

DOI: 10.1108/IJPPM-02-2018-0083

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