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Mexico or China, Managing a Global Network

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EXECUTIVE SUMMARY FOR MEXICO OR CHINA, MANAGING A GLOBAL NETWORK CASE

Introduction – A US manufacturer of wireless transmission components sources its components from two assembly plants, one in China and another in Mexico. Sourcing the components from China is cheaper but has a lead time of 4 weeks whereas sourcing from Mexico is expensive with a lead time of 1 week. A Dual-sourcing strategy or a policy has to be developed for a wireless transmission component with a mean demand 40 units/period and standard deviation of 20 units/period.

Analysis – The main trade-off involved in the sourcing mode decision is the one between the profit earned by the company in the end and the demand that is met toward the end. If there is sufficient inventory on-hand in the last period, although the demand can be easily met, the company would lose on the profits. However, if the inventory is less in the end, even though the demand may not be met due to a shortage, the loss incurred due to on-hand inventory would be comparatively less.

Initially, the sourcing of the component shall be from China with the order quantity equal to the order up-to level arrived at using the lead time demand for 4 weeks. Thus, an order is placed to China to source 225 products. Following the order from China, nothing is sourced from either China or Mexico for the next 3 weeks. Post this, each week an order with a quantity equal to the demand in that particular week is placed to China. Meanwhile, nothing is sourced from Mexico. This will ensure that pipeline inventory is same at all times and works out to the order up-to level that is calculated initially. Towards the end of the product life cycle, no more orders are placed for the last seven weeks in order to reduce the on-hand inventory in the last period.

Advantages of proposed approach: * By not ordering anything for the last seven weeks from

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