Centralized vs decentralized sourcing strategy for multi-tier automotive supply network

Purpose: Multiple stages of procurement for a product in a supply chain (SC) altogether form a “multi-Tier” supply network. The purpose of this paper is to develop and verify a systematic solution approach to ascertain the realistic cost advantage of a coordinated centralized sourcing strategy as compared to an isolated decentralized sourcing strategy for a multi-tier supply network under demand uncertainty. Design/methodology/approach: The proposed systematic solution approach consists of seven steps to compare and contrast the cost advantage of a centralized coordinated sourcing strategy over a decentralized stage-wise sourcing strategy for a multi-tier supply network. A real-life automotive industry case analysis of two distinct products provides sufficient empirical evidence on the expected cost advantage of centralized coordinated sourcing strategy under demand uncertainty. Findings: The case analysis affirms the practicability of the proposed seven-step solution approach to determine the realistic cost advantage of coordinated sourcing. Research limitations/implications: The scope of this research is restricted to a single product and two-tier supply network analysis. This research work also considers a restrictive assumption of negligible coordination cost. Practical implications: The suitability of the proposed solution approach is verified using real-life case examples. This research provides theoretical insights and factual evidence to SC practitioners, so as to adopt a centralized sourcing strategy in a varied manufacturing environment. Originality/value: There is no evidence of a systematic step-by-step solution approach to determine the cost advantage of a coordinated sourcing strategy over an isolated decentralized sourcing strategy for a multi-tier supply network under demand uncertainty.