Utilising the potential of combining local and global supply chains

Journal article, 2010

Outsourcing of manufacturing leaves two options for the structuring of the supply network: either complete outsourcing of an item or process, or combining external sourcing and in-house manufacturing. The objective of this paper is to explain the effect on performance of various strategies of combining in-house manufacturing and outsourced manufacturing. The analysis is based on a case study of a European manufacturer (EM) that has outsourced part of its casting processes to Chinese suppliers. The strategies were tested by means of a simulation study and compared in terms of their effects on inventory performance. The study showed at significance level p < 0.01 that inventory levels in China decreased 23% and inventory levels in Europe decreased 6% with a so-called base-surge strategy, sourcing predictable and stable demand in China and uncertain demand in-house in Europe.