Offshore versus Onshore Sourcing: Quick Response, Random Yield, and Competition

Abstract

Motivated by the recent reshoring initiatives, we study firms’ global sourcing strategies from two different supply sources, offshore and onshore supply bases, under supply and demand uncertainty. Interestingly, even though onshore sourcing has a significant benefit from market responsiveness, offshore sourcing having no cost advantage also provides benefits in the presence of yield uncertainty and market competition. If competing firms commit single sourcing, one firm may choose inferior offshore sourcing to dampen competition. When a dual‐sourcing option is available, firms always utilize dual sourcing, offshore sourcing as well as onshore sourcing, for risk pooling purpose. Our result shows that risk pooling is an essential driver in supplier selection in that the need for dual sourcing cannot be eliminated by other influential factors (e.g., responsiveness and competition effect). However, we find that firms may suffer from a dual‐sourcing option under competition. This contrasts with the conventional wisdom that dual sourcing benefits firms in the presence of supply uncertainty. When it comes to order allocation, market responsiveness is not necessarily an order winner since it does not lead to a larger order to an onshore supplier if demand is guaranteed above a certain level. Under competition, firms’ order allocation is mainly determined by supply yield correlations.

Back-shoring vs near-shoring: a comparative exploratory study in the footwear industry

“… Management International Review 2020 Gurvich, V.J., Hussain, A.S. AAPS PharmaSciTech 2020 Gutiérrez, Ó. Journal of Operational Research Society 2020 Jung, S.H. Production and operations management 2020 Kandil, N., Battaia, O., Hammami, R. Annual Reviews in Control 2020 Kurata, H., Nomura, R., Suga, N. Review of International Economics 2020 Lund, H.B., Steen, M. Geoforum 2020 Martínez-Mora, C., Merino, F. Journal of Manufacturing Technology Management 2020 Moretto, A., Patrucco, A.S., Harland, C.M.…”

Optimal Green Operation and Information Leakage Decisions under Government Subsidy and Supply Uncertainty

“…That is, if retailer i purchases 𝑞 from the supplier, they will only receive 𝑦 𝑞 . Similar to Jung [7], we assume a random…”

“…This phenomenon is referred to as information leakage (Kong et al [3]). Alternatively, supply variability may be caused by equipment failure, human error, as often seen in the agriculture, automobile, and vaccine industries (Zhou et al [4]; Dai et al [5]; Arifo glu et al [6]; Jung [7]). Uncertainties in the yield processes of a common industry are often positively correlated (Jung [7]).…”

“…Alternatively, supply variability may be caused by equipment failure, human error, as often seen in the agriculture, automobile, and vaccine industries (Zhou et al [4]; Dai et al [5]; Arifo glu et al [6]; Jung [7]). Uncertainties in the yield processes of a common industry are often positively correlated (Jung [7]). In their works, Liu et al [8], Chen and Ozer [9], and Kong et al [3] examined the issue of information leakage under different types of contract.…”

Price negotiation and coordination in outsourcing supply chain under yield and demand uncertainties

“…For a complete review, we refer the reader to Yano and Lee [37] and Grosfeld-Nir and Gerchak [11]. Jung [18] compared offshore sourcing and onshore sourcing under yield and demand uncertainty. Hsieh and Lai [16] explored the order allocation for a capacity-constrained manufacturer, who sources from a stable-yield supplier producing standard-quality components and an unstable-yield supplier producing high-quality components.…”