Fung Distinguished Lecture Series in Risk Management in Energy, Finance and Supply Chains: Prof. Jan A. Van Mieghem (Kellogg School of Management: Northwestern University): Global Dual Sourcing: Mexico or China?

Professor Jan A. Van Mieghem from Northwestern University will give a talk at UC Berkeley about global dual sourcing in China and Mexico.

Globalization offers challenges and opportunities; Professor Van Mieghem investigates how global dual sourcing can capture cost and flexibility benefits while mitigating demand risk. When designing a sourcing strategy in practice, a key task is to determine the average order rates placed to each source because that affects cost and supplier management. Professor Van Mieghem considers a firm that has access to a responsive near-shore source (e.g., Mexico) and a low-cost offshore source (e.g., China). The firm must determine an inventory sourcing policy to satisfy random demand over time. Unfortunately, the optimal policy is too complex to allow a direct answer to our key question. Therefore, Professor Van Mieghem analyzes a tailored base-surge (TBS) sourcing policy that is simple, used in practice, and captures the classic tradeoff between cost and responsiveness. The TBS policy combines push and pull control by replenishing at a constant rate from the offshore source and producing at the near shore plant only when inventory is below a target. The constant base allocation allows the offshore facility to focus on cost efficiency while the nearshore’s quick response capability is utilized only dynamically to guarantee high service. The research goals are to i) determine the allocation of random demand into base and surge capacity, ii) estimate corresponding working capital requirements, and iii) identify and value the key drivers of dual sourcing.