Penn State University Press
  • Expect the Unexpected: Supply Chain Disruption and Opportunity for US Companies-A Business Case
Abstract

Many researchers have revealed that US companies acknowledge the inevitability of supply chain disruptions in a global environment. These companies employ strategies that vary from proactive, reactive, resilient, to no supply chain risk management (SCRM) strategies to mitigate risks and ensure business continuity. When a company’s competitive advantage is speed to market, it is only logical that its front-end low-cost country sourcing (LCCS) decision model should include a Disruption Contingency Plan (DCP) as one of the factors for evaluation. In this research, we focus on the company’s financial performance with or without the up-front DCP in a closed loop outsourcing decision model, exploring and analyzing its relative effect on the firms’ Economic Value Added (EVA). In doing so, we reason, the decision to adopt low-cost outsourcing in foreign countries should not be reached without addressing the company’s speed-to-market capability. Using a US company that manufactures industrial printers as an example, various scenarios and options are explored for EVA comparisons in terms of a company’s ability to maintain normal sales, and capture competitors’ market share during supply chain disruptions. This example links the relevance among the outsourcing decision, the up-front DCP, and the company’s EVA during supply chain disruptions. Even when disruption strikes, there is still an opportunity for profitability.

Keywords

Speed to market, Supply Chain Disruption (SCD), Disruption Contingency Plan (DCP), Outsourcing, Economic Value Added (EVA)

Introduction

This study is inspired by the following observation, an insight many supply chain managers and executives may not have considered: When a company’s competitive advantage is speed to market, how can it maintain its normal sales level during a supply chain disruption and at the same time manage to overtake a competitor’s market share for normal or above-normal profits? [End Page 118]

To answer this question, we must first understand how the complexity of the supply chain has increased through companies’ expanded global operations in recent years, in terms of commodities, top trading countries, and expanded geographical boundaries. We have chosen the electronics industry in this study because the authors have experience working in the manufacturing sector of this industry (industrial printers and medical goods). International trade data from 2002 to 2009 show the trends in the context of supply chain complexity. The shipping distances are longer, affecting push-pull strategies, and the longer lead time, increased inventory carrying cost, and transportation cost are affecting financial performance. More importantly, is a company’s supply chain design exploitable to sustain its competitive advantage in speed to market?

Based on import statistics from 2002 to 2006 provided by the US International Trade Commission, we see an upward trend for computers, peripherals and components, television receivers and video monitors, telephone and telecommunication equipment, and medical goods. We see a downward trend for radio and television broadcasting equipment, photographic cameras and equipment, and prerecorded media. The top six leading trade countries in electronics for the United States are China, Mexico, Japan, Malaysia, Taiwan, and Korea. China, Mexico, and Malaysia are trending upward, whereas Japan, Taiwan, and Korea are trending steadily downward (US International Trade Commission 2007). The upward trend of US imports during 2002 to 2006 was disrupted by the economic downturn in recent months as consumer buying power has been reduced, causing a negative chain reaction across all industries. The downturn has impacted both imports and exports. Note, however, that many exports to China and Mexico are component consignments to suppliers in those countries. For example, semiconductors are sent to China for computer and cellphone assemblies, and Maquiladora operations in Mexico finish assembly using US-consigned components (US Census Bureau 2009).

From these statistics we may infer that the demand-driven US market drives more and more companies to low-cost foreign suppliers to achieve lean and just-in-time operations. Witnessing the recent declines in the trade data, one cannot ignore the economic impact. In one industry after another, supply chains have been stretched further than they have ever been in the past and lean, just-in-time production schedules have made the consequences of a disruption more severe (Bosman 2006). With increasing supply chain complexity, key questions are (1) how should a company maintain its speed to market capability when a supply chain disruption [End Page 119] strikes? and (2) how will the company be able to achieve even better financial performance when the disruption is across the industry?

To answer these questions, we first review relevant studies on the subject. Key findings are listed in the literature review section. Second, we describe our framework and method for further analysis in the methodology section. Third, using an industrial printer company as an example, we analyze the data to test the proposed framework. Results of this analysis are listed in the analysis section. The research limitations section acknowledges the narrow scope of this research. The managerial implications section considers what supply chain managers need to know. The last two sections contain our conclusions and recommendations for future research.

Literature Review

Four areas of related work will provide insights into our research questions. They are supply chain disruption and its effect on financial performance, risk-mitigating strategies and business continuity plans, concerns for managing globalization and outsourcing risks, and customer footprints.

Supply Chain Disruption and Its Effect on Financial Performance

As part of its 2006 research on risk management, Accenture found that 73 percent of companies have experienced supply chain disruptions in the past five years. Of those, executives at nearly 33 percent of responding companies said it took more than one month to recover, and 36 percent said it took between one week and one month to recover. The vast majority (94%) said the disruption affected profitability and their company’s ability to meet customers’ expectations. Fifty-six percent said the impact on customers’ expectations was moderate or significant (Byrne 2007).

The more global the operations become, the more the supply chain risk grows. In the 2006 global operations study, Accenture found that few companies develop their global operations strategies with specific attention to managing supply chain risks. Seventy-five percent of respondents acknowledged that they have not fully integrated risk mitigation with their global operations strategies, and nearly 10 percent have done nothing (Byrne 2007).

So, what are the most frequent causes (factors) for supply chain disruptions? Accenture research indicates that the most frequent causes of disruption are those associated with supply chain partners, raw materials, and natural disasters—one factor from each of the three categories shown in figure 1. It is surprising that the more controllable events are generally the sources of the greatest disruption (Byrne 2007). [End Page 120]

Figure 1. Causes (Risks) of Supply Chain Disruptions Source:
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Figure 1.

Causes (Risks) of Supply Chain Disruptions

Source: Byrne 2007

Research conducted by Hendricks and Singhal (2005) provides evidence of the economic consequences of disruptions. An analysis of financial performance of nearly 800 instances of disruptions at publicly traded firms reveals that most of these disruptions seemed to be caused by the firm’s inability to tightly manage and control its internal and external supply chain network. Companies that suffer from supply chain disruptions experience an average of 36.5 percent lower stock returns relative to their bench-marks over the three-year time period that begins one year before and ends two years after the disruption announcement date. In addition, these disruptions have a significant negative across-the-board effect on stock prices, profitability, and share-price volatility. After adjusting for industry and economic effects, the average effect of disruptions in the year leading to the disruption is an average 107.5 percent drop in operating income, a 7 percent decrease in sales growth, and 11 percent increase in cost. The average percentage change in Return on Assets and Return on Sales are 114.5 percent and 92.2 percent, respectively. The disruptions have a debilitating effect on performance. Firms do not quickly recover from disruptions and they continue to operate for at least two years at a lower performance level after experiencing disruptions. The bottom line—disruptions devastate corporate performance (Hofman 2006). For example, in March 2000, a lightning bolt that struck a Philips semiconductor plant in Albuquerque, New Mexico, created a ten-minute blaze that contaminated millions of chips [End Page 121] and subsequently delayed deliveries to one of its largest customers, Sweden’s Ericsson. As a result, Ericsson reported a $400 million loss because it did not receive chip deliveries from the Philips plant in a timely manner (Handfield 2007).

Deloitte’s risk management study, Disarming the Value Killers, contained a major finding that various significant capitalization losses were credited to events that were considered unlikely and for which many companies failed to plan. Many companies lost more than 20 percent of their market value in the month after the negative event, and it often took more than a year before their shares regained their original levels (Bosman 2006).

One recent study argues, de facto, that supply chain disruptions are unavoidable and, as a consequence, all supply chains are inherently risky. Firms need to identify factors that must be considered when making decisions about whether to enact or implement specific operational and supply chain policies, practices, and initiatives (Handfield 2007). Other studies and articles corroborate the importance of planning. For example, Hendricks and Singhal (2005) suggested that planning and execution be integrated and synchronized. Anderson, Britt, and Favre (2007) emphasize the critical step of setting explicit outcome targets for revenue growth, asset utilization, and cost reduction. In addition, they highlight the importance of advance planning that specifies funding, leadership, and expected financial results.

Risk-Mitigating Strategies and Business Continuity Plan

Some articles and studies suggest using risk-mitigating strategies for business continuity. Bear in mind that they are focused on back-end processes and analysis. In other words, continuity planning is made after the processes have already been established. For example, a study done by the Risk Management Institute (RMI) at Northern Kentucky University shows that supply chain risk is a function of threat, vulnerability, and consequence. This model uses a fact-based quantitative approach to prioritize risk from a cross-functional perspective (Li 2008). “Supply Chain Interruption” and “Supply Execs Share Disaster Strategies” indicated the importance of having broad and deep business continuity plans that cover a wide range of contingencies, such as disaster recovery, safety of employees, retrieval of backup business data, emergency communications, possible relocation of business operations to an alternative location, and sourcing of goods from alternative suppliers. Procter & Gamble’s well-tuned business-continuity plan was used to illustrate its ability to find capacity for markets after Hurricane Katrina (Bednarz 2006; Brazeau 2006). [End Page 122]

Concerns for Managing Globalization and Outsourcing Risks

In a study titled “Managing Business Risk in 2006 and Beyond” conducted by Harris Interactive, close to half of the more than 600 financial executive respondents said risks associated with globalization and outsourcing are only a low priority or concern for their organizations, potentially leaving their supply chains vulnerable. On average, respondents indicated the majority of their risk-management budgets are allocated to risk control (loss prevention) rather than risk transfer (buying insurance). North America–based companies are roughly twice as likely as their overseas counterparts to cite insufficient time, inadequate personnel, and insufficient budgets as the biggest obstacles to addressing top risks (Brazeau 2006). Many companies rush to revamp their supply chains without giving much thought (or data analysis) to the likelihood of supply chain disruption. As they outsource to China, Hungary, India, Malaysia, the Philippines, Vietnam, and other developing countries, they often unknowingly take on greater exposure to natural disasters, lower safety standards, and less reliable legal systems, among other risks (Bosman 2006).

Customer Footprints

It is important to minimize the impact of disruptions on a company’s financial performance. Equally important is recognizing the need to meet customer expectations in a timely manner, despite any disruptions. It would be a mistake to focus only on trying to manage catastrophic supply chain disruptions. Just as one major disaster can wipe out a company or product line, so too can a series of minor disruptions. For example, if a company is consistently a week late in meeting customer demand, or if retailers’ shelves are routinely not stocked with its products, the chances of the company staying in business fall precipitously. In short, good supply chain management considers more than costs; it also considers customer satisfaction (Bosman 2006). In fact, the loss of customers’ goodwill outweighs everything else. Simply doing the back-end mitigation of supply risk (Pickett 2006), having enterprise risk management and a business continuity plan, or buying insurance is not enough. A company must push the preventative process up front, prior to any disruptions.

Methodology

Based on the literature review, we developed a simple framework that incorporates a Disruption Contingency Plan (DCP) to provide business [End Page 123] continuity and opportunity to increase market share in the event of supply chain disruptions, thus creating normal or above-normal profits. The following simple equivalent expressions sum up the proposed framework for the DCP.

inline graphic

Today, low-cost country sourcing (LCCS) has become a standard competitive strategy in many industry sectors (Handfield 2007). The electronics industry is no exception. For example, a US Midwest-based industrial printer manufacturer outsourced some of its product lines to China and ocean-freighted them back to a distribution center for inventory (push) and final light assembly (pull) to American markets. For companies that have yet to explore LCCS options or for those that desire to reevaluate their supply chains, a rather elegant approach to further differentiate themselves from their competitors is to set up a front process, such as DCP, to evaluate all the potential pitfalls before a decision is made. In an adapted closed-loop outsourcing decision model (Kumar and Eickhoff 2005/2006), we have identified a point where such a DCP should be placed. Figure 2 displays each decision point in detail. The LCCS exercise starts with a “make or buy” action, followed by extensive points of internal and vendor assessment. DCP is the last line of defense right after the risks and the total cost have been considered. An “N” (“No”) denotation for DCP will lead to a “Do Not Outsource” decision.

Within the contingency plan, a broad and deep business continuity plan should be covered, such as disaster recovery, safety of employees, retrieval of backup business data, emergency communications, and possible relocation of business operations to an alternative location. More importantly, when it comes to meeting market demands to prevent loss of customers’ goodwill, a thorough plan that examines a comprehensive list of “what if ” scenarios is essential for getting products to customers in a timely manner, thus ensuring mutual profitability. Not only that, when competitors are also impacted by the disruption, companies positioned to get products to the market will likely gain market share for above-normal profits.

In constructing “what if” scenarios, triangular distribution is used to estimate the duration of disruption, given the limited sample data. It is based on knowledge of the minimum and maximum and a guessed model value (Brighton Webs Ltd. 2008). Maximum disruption period is estimated at 12 weeks, minimum at 2 weeks, and the guessed mode at 6 weeks. The mean is 6.7 weeks with one standard deviation at 5 weeks. [End Page 124]

Figure 2. Exercising Outsourcing Decision with Contingency Plan
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Figure 2.

Exercising Outsourcing Decision with Contingency Plan

Two main business alternatives—single sourcing and dual sourcing—are presented to compare a company’s existing supply chain without a DCP and a redesigned supply chain with a DCP during each disruption period after safety stock runs out. The first alternative (single sourcing) is used to compare an existing supply chain without a plan and a redesigned [End Page 125] supply chain with a plan. It explores the options of maintaining above safety stock inventory, using alternative transportation, buying business interruption insurance, and having extra capacity to ensure normal profits since the first two costs are the biggest factors in the supply chain. The second alternative (dual sourcing), used to further examine the redesigned supply chain with a plan, combines “near shoring” and “dual sourcing” concepts to reach above normal profits (Sheffi 2001; Pochard 2003; Bartholomew 2006; Rizza 2007; Lee and Whang 2008). And finally, Economic Value Added (EVA) is used for both single sourcing and dual-sourcing alternatives to measure the company’s financial performance. The invested capital (above safety stock inventory) and the cost of capital should be considered. EVA is based on the residual wealth calculated by deducting cost of capital from its operating profit (adjusted for taxes on a cash basis).

Analysis

The previously described industrial printers are used for analysis purposes. The particular printer model is one of many product lines marketed by a mid-sized US company. Printer cost is based on a specific model made in China at $550. Printer selling price is gathered from a period of five weeks to arrive at an average of $850. Selling, general and administration (S G&A) expense is estimated at 25 percent of sales. The standard “rule of thumb” for inventory carrying cost is 25 percent of inventory value on hand. Total inventory costs can be estimated as follows:

Cost of capital 6%–12%
Taxes 2%–6%
Insurance 1%–3%
Warehouse Expenses 2%–5%
Physical Handling 2%–5%
Clerical & Inventory Control 3%–6%
Obsolescence 6%–12%
Deterioration & Pilferage 3%–6%
Total 25%–55%

In our analysis, the inventory carrying cost is estimated at 25 percent and is broken down into cost of capital at 10 percent and the rest at 15 percent. Income Taxes are estimated at 35 percent. The additional inventory tied-up [End Page 126] capital is insured at a 2 percent premium rate. The following assumptions are made:

  1. 1. Demand is certain at 100 units per week.

  2. 2. Lead time to inventory is certain at seven weeks (two weeks production and four to five weeks in ocean transit).

  3. 3. Safety stock is set at two weeks.

  4. 4. The distribution center receives one container load (200 units) every two weeks.

For illustration purposes, table 1 (T1), table 2 (T2), and table 3 (T3) are created for the single-sourcing alternative; and table 4 (T4) and table 5 (T5) are created for the dual-sourcing alternative.

Table 1. (Single Sourcing) An Illustration of Annual EVA Effect with No SC DCP during Each Stock Out Situation Ranging from Scenario A at Two Weeks Stock Out to Scenario E at Six Weeks Stock Out
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Table 1.

(Single Sourcing) An Illustration of Annual EVA Effect with No SC DCP during Each Stock Out Situation Ranging from Scenario A at Two Weeks Stock Out to Scenario E at Six Weeks Stock Out

[End Page 127]

Table 2. (Single Sourcing) An Illustration for the Redesigned Supply Chain to Achieve Normal Annual Sales by Using Hybrid Options in Preparing for DCP
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Table 2.

(Single Sourcing) An Illustration for the Redesigned Supply Chain to Achieve Normal Annual Sales by Using Hybrid Options in Preparing for DCP

Table 1 illustrates extreme circumstances when a company’s existing supply chain is not prepared for disruptions. Scenario A, a two-week stock-out situation, occurs when the safety stock runs out. The same situation applies to three to six weeks (triangular distribution mean). Its annual EVA is shown in the bottom section at each stock-out situation. The degree of percentage change is reflected in the bottom section. The effect is negative compared to normal annual sales revenue because the company’s existing supply chain does not have any inventory to meet market demands. The likelihood of losing customers’ goodwill is very high.

Scenarios A to D in table 2 illustrate that to maintain normal annual sales revenue, the redesigned supply chain carries additional inventory during normal times in preparing for disruptions. For example, under scenario A, [End Page 128] an additional 200 units at $110,000 are carried with $2,200 insurance premium during normal times. EVA shows negative percentage value doubled to − 8 percent in comparison with that of existing supply chain at − 4 percent. It can be assumed without further analysis that not too many companies would be willing to see negative EVA just to prepare for supply chain disruptions (SCDs). Therefore, Scenario E is presented just to cover the EVA shortfall. It illustrates that to maintain normal annual sales revenue, the redesigned supply chain would use a hybrid of carrying additional inventory during normal times (200 units at $110,000), insure additional inventory under business interruption insurance ($110,000 for 200 units), and ship airfreight for available capacity (400 units). It can be done with careful planning. EVA shows positive percentage change at 12 percent from normal sales.

Table 3. (Single Sourcing) An Illustration for the Redesigned Supply Chain to Achieve above Normal Annual Sales Revenue by Using Hybrid Options in Preparing for DCP
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Table 3.

(Single Sourcing) An Illustration for the Redesigned Supply Chain to Achieve above Normal Annual Sales Revenue by Using Hybrid Options in Preparing for DCP

Scenarios A to D in table 3 provide illustrations with an objective to achieve above-normal annual sales revenue. Here, an additional 300 units [End Page 129]

Figure 3. EVA and Speed-to-Market Analysis between an Existing Supply Chain and the Redesigned Supply Chain Using Hybrid Options during SCD
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Figure 3.

EVA and Speed-to-Market Analysis between an Existing Supply Chain and the Redesigned Supply Chain Using Hybrid Options during SCD

at $165,000 are carried with a $3,300 insurance premium during normal times under scenario A. EVA shows the negative percentage value at − 11 percent to normal sales in comparison with that of existing supply chain at − 4 percent. Given that not many companies would be willing to see negative EVA just to prepare for SCD, scenario E is presented to cover the EVA shortfall. It illustrates that to maintain above-normal annual sales revenue, the redesigned supply chain would use a hybrid of carrying additional inventory during normal times (300 units at $165,000), insuring additional inventory under business interruption insurance ($165,000 for 300 units), and shipping airfreight for available capacity (600 units). With these implementations, EVA shows positive percentage change at 12 percent from normal sales. Figure 3, created from the bottom three rows of tables 13, shows a comparison of tables 13 in terms of EVA and speed to market between the existing supply chain and the redesigned supply chain during SCD. The abrupt rise showing positive EVA in figure 3 represents scenario E in tables 2 and 3. When the DCP in the redesigned supply chain includes speed-to-market factor, above-normal sales is attainable even during SCD. [End Page 130]

Table 4. (Dual Sourcing) An Illustration for the Redesigned Supply Chain to Achieve Normal Annual Sales Revenue by Using Near Shoring, Dual Outsourcing, and Insurance in Preparing for DCP
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Table 4.

(Dual Sourcing) An Illustration for the Redesigned Supply Chain to Achieve Normal Annual Sales Revenue by Using Near Shoring, Dual Outsourcing, and Insurance in Preparing for DCP

Tables 4 and 5 illustrate effects of added “near shoring” and “dual sourcing” processes. In addition to outsourcing to China for 90 percent of supply ratio at $550 per printer, the redesigned supply chain also uses a back-up supplier in Mexico for 10 percent of supply ratio at $630 per printer (15% higher cost). During normal times, the China supplier supplies 4,680 units, while the Mexico supplier supplies 520 units. In table 4, to achieve normal annual sales revenue during SCD, the redesigned supply chain uses a hybrid of dual sourcing with one supplier much closer to the United States (Mexico), plans for extra capacity from the back-up supplier, and insures the cost difference between the two suppliers under business [End Page 131]

Table 5. (Dual Sourcing) An Illustration for the Redesigned Supply Chain to Achieve Above-Normal Annual Sales Revenue by Using Near Shoring, Dual Outsourcing, and Insurance in Preparing for DCP
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Table 5.

(Dual Sourcing) An Illustration for the Redesigned Supply Chain to Achieve Above-Normal Annual Sales Revenue by Using Near Shoring, Dual Outsourcing, and Insurance in Preparing for DCP

interruption insurance. For example, in scenario A, to achieve normal annual sales revenue, the redesigned supply chain has the Mexico supplier ship 180 more units (difference between 700 units and 520 units) because the China supplier has no products to ship due to SCD. The cost difference between the two suppliers is insured for $56,000 at a 2 percent premium rate ($1,120). During the disruption, the redesigned supply chain is not only able to maintain normal sales revenue with dual sourcing, but its insurance also covers the cost difference, resulting in no EVA (0%) change compared to normal annual sales revenue. The issue of this dual sourcing model is the − 9 percent EVA during normal times. Because the company may not be willing to have − 9 percent EVA during normal times just to prepare for SCP, [End Page 132] certain trade-offs and checks and balances need to be done for better EVA during normal times (e.g., lower suppliers cost, and adjust supply ratio).

In table 5, the redesigned supply chain uses the same approaches as those in table 4, but with an objective to achieve above normal annual sales during SCD. For example, in scenario A, to achieve above-normal annual sales, the redesigned supply chain has the Mexico supplier ship 280 more units (difference between 800 units and 520 units) because the China supplier has no products to ship due to SCD. The cost difference between the two suppliers is insured for $64,000 at a 2 percent premium rate ($1,280). As in table 4, the redesigned supply chain is not only able to achieve above-normal sales revenue with dual sourcing during the disruption, but its insurance also covers the cost difference, resulting in positive EVA (from 1% to 5%) change compared to normal annual sales. The issue of this dual sourcing model is the − 9 percent EVA during normal times. Again, since the company may not be willing to have − 9 percent EVA during normal times just to prepare for SCP, certain trade-offs need to be done for better EVA during normal time. Based on data from the bottom three rows of tables 4 and 5, figure 4 shows a comparison of tables 4 and 5

Figure 4. EVA and Speed to Market Analysis between an Existing Supply Chain and the Redesigned Supply Chain Using Near Shoring, Dual Sourcing and Insurance during SCD
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Figure 4.

EVA and Speed to Market Analysis between an Existing Supply Chain and the Redesigned Supply Chain Using Near Shoring, Dual Sourcing and Insurance during SCD

[End Page 133]

in terms of EVA and speed to market between the existing and redesigned supply chain during SCD. The slightly upward EVA represents the benefits of achieving above-normal sales revenue. When the DCP in the redesigned supply chain includes speed-to-market factor, above-normal sales revenue is attainable even during SCD, although further trade-off analysis needs to be done to bring EVA closer to zero percent during normal times.

Managerial Implications

Supply chain managers should be aware that even minor supply chain disruptions can have a negative impact on financial performance because small disruptions have a cumulative effect. While Accenture’s research tells us that the more controllable events actually cause the greatest disruption, managers ought to rethink how they manage their existing supply chains. When numerous studies demonstrate that SCD is fundamentally inevitable, what can managers do to brace for the impact? What can managers do, not only to absorb the impact, but also to transform into the company’s competitive advantage?

Savvy managers should always expect SCD, whether minor or major. Safeguard or risk mitigation is usually in place only to prevent the loss of normal sales. But what about when the impact is industry-wide? Will the company suffer along with others? Or, on the contrary, will it thrive? A smart manager will have a plan that allows for the opportunity to increase market share when SCD strikes. Never let a good crisis go to waste. Even before the off-shoring decision is made, strategies such as risk transfer (disruption insurance), near shoring, and dual outsourcing should be considered (Pochard 2003; Kumar, DuFresne, and Hahler 2007; Wu and Tomlin 2008). A strong off-shoring strategy must include a sound contingency plan to maintain normal sales levels. However, those who expect and are prepared for supply chain disruptions will have greater opportunities to achieve normal or above normal profits in the long run.

Research Limitations

The scope of this research is narrow, focusing on incorporating a disruption contingency plan into a closed loop outsourcing decision model. It emphasizes the market share opportunity when the plan is placed according to a company’s competitive advantage in speed to market. Only one product line is used for illustration. Factors such as quality, capacity, demand uncertainty, lead time uncertainty, degree of disruption and Mexico-US transportation expediting cost are not included in the analysis. [End Page 134]

Conclusions and Recommendations for Future Research

This research shows that in addition to maintaining business continuity, smart companies can plan above and beyond for opportunities to increase market share during supply chain disruption. The supply chain risk model developed by RMI at Northern Kentucky University is a very good tool to include in the business continuity analysis for maintaining normal sales. To reach a real trade-off in our model, DCP ⇔ Business Continuity + Market Share ⇔ Normal or Above-Normal Profits, variables mentioned in the research limitations should be considered and extensive analyses must be performed.

Our model is far more complex than it appears on the surface. A systematic approach with good data would be required. Specifically, factors such as quality, capacity, demand uncertainty, lead-time uncertainty, degree of disruption, and Mexico-US transportation expediting costs should be considered in developing a comprehensive closed-loop outsourcing decision model. Further research on system capabilities would be helpful in assisting companies that are willing to invest to sustain a workable DCP strategy.

Sameer Kumar
Gail Harrison
Opus College of Business
University of St. Thomas
Minneapolis, MN 55403-2005, USA

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