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

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.