MT433 Unit 10 Global Sourcing Strategy Example

Seventy From Faisalabad, Thirty From Puebla: An MT433 Unit 10 Global Sourcing Strategy With Priced Risks

[Student Name]

Purdue University Global

MT433: Global Supply Chain Management

Unit 10 Global Sourcing Strategy

[Instructor Name]

[Date]

Catawba Linen Supply, its sources and every probability and impact are composite estimates built on the earlier units' figures; trade rates are as recorded on the quote date, and the sources cited are real.

Executive Summary

Catawba should buy 215,600 standard towels from Faisalabad, 92,400 hotel towels from Puebla and 60,000 premium towels from Guimaraes. The blended landed cost of standard towels rises from $4.91 if everything stayed in Pakistan to about $5.02, an added $33,905 a year, but faster hotel replenishment recovers about $52,000 and the split lowers expected risk cost by about $11,000. The plan depends on the Puebla towels qualifying for duty-free entry, which requires the mill to switch to North American yarn before the first full order.

The Source Map

Faisalabad supplies the retail line, whose orders are planned weeks ahead and where the lowest landed cost matters most. Puebla supplies the hotel line, where late towels cost Catawba air freight and penalty credits. Guimaraes supplies premium towels, bought in euros under the hedging policy from Unit 5. Denizli, scored as the lower-risk second source in Unit 7, is kept as a qualified backup with a trial order each year, so a switch would not start from zero if Pakistan's costs or risks rose sharply.

Each share has a reason. The 70 percent stays in Pakistan because no other source matches its landed cost for planned orders. The 30 percent moves to Mexico because that is the share of volume where speed has a price. Kraljic (1983) proposed sorting purchases by their weight in profit and the risk in their supply, then managing each group differently; the split applies that sorting inside one product, since the same towel is a routine buy for retail and a critical one for hotels.

Landed Cost

From Unit 2, a Faisalabad towel lands at $4.91 once the Pakistani surcharge and 73 days of carrying cost are counted. From Unit 8, a Puebla towel lands at $5.28 if it qualifies for duty-free entry. Blended across 308,000 standard towels, the cost is about $5.02. The premium towels land at about $7.96 at a euro of 1.16 dollars.

The Risk Register

Five risks are priced as an annual probability times the cost if the event occurs, for the recommended split and for the all-Pakistan alternative.

A longer Cape routing or a Karachi port delay of about two weeks on a quarter of shipments is estimated at a 20 percent annual probability. Under the split it would cost about $52,280 in extra carrying cost, air freight and hotel credits, an expected $10,456. Under all-Pakistan the hotel line is also exposed, so the cost rises to about $98,000 and the expected cost to $19,600.

A ten-point rise in the U.S. surcharge on Pakistani goods is estimated at 25 percent. On 215,600 towels it would cost about $74,813, an expected $18,703; on 308,000 towels, about $106,876, an expected $26,719.

One detained container, from a forced-labor inquiry or another hold, is estimated at 15 percent. Its cost, about $60,980 under the split and $72,000 under all-Pakistan if a hotel container is held, gives expected costs of $9,147 and $10,800.

A euro at 1.24 dollars, affecting only the premium line, is estimated at 30 percent. The margin loss against the 1.16 base is about $32,016, an expected $9,605 under either plan, before the forward cover from Unit 5.

A quarter of failed Mexican origin, three loads entering at full duty, is estimated at 20 percent. It would cost about $38,600, an expected $7,720. All-Pakistan carries no such risk.

The expected total is about $55,631 under the split and $66,724 under all-Pakistan.

The split adds a new risk, Mexican origin, but takes enough of the old ones off the Cape lane to lower the total by about $11,000.

Weighing Cost and Risk Together

The split costs $33,905 more in landed cost and saves $52,000 in expedites and credits, leaving Catawba roughly $18,100 better off each year. It also lowers expected risk cost by about $11,093. Together, the strategy is worth about $29,000 a year against keeping everything in Pakistan. The probabilities are judgments, so the comparison was rerun with the one risk the split adds, failed Mexican origin, doubled to a 40 percent chance; the strategy is still about $21,500 a year ahead. Chopra and Sodhi (2004) warned that risk-reduction steps have their own costs and should be chosen by comparing those costs with the risks they address, which is what the register allows.

Conditions and Triggers

Two events would send the whole plan back out to bid. The first is the loss of duty-free entry for Mexican towels, whether because the Puebla mill cannot qualify or because the agreement's 2026 joint review changes the textile rules or the surcharge on non-qualifying goods. The second is a U.S. surcharge on Pakistani goods of 30 percent or more, at which point Denizli, at about $5.26, would land below Faisalabad and the retail line should be retendered.

Three conditions apply before the plan starts: the Puebla mill confirms North American yarn in writing and a qualifying trial load passes the Unit 9 review; forward cover for 75 percent of the euro payables is in place; and the Faisalabad mill provides cotton origin documents for each order.

What the Plan Asks of Each Supplier

The strategy changes what Catawba needs from each mill, and the contracts should say so. The Faisalabad contract should add a cotton origin document with every shipment and fix prices in dollars for twelve months. The Puebla contract should name the yarn spinner, require a signed origin statement covering every period of shipments, and give Catawba the right to inspect yarn purchase and production records at the mill. The Guimaraes contract should keep euro pricing, since the hedge in Unit 5 is built around it, but cap price changes at renewal. The Denizli trial order should be large enough, at least one container, to test the mill's quality and paperwork in practice.

Monitoring

The source map, landed costs and risk register are reviewed each quarter. Sheffi (2005) argued that resilience comes less from any single plan than from the habit of watching for change and the flexibility to respond, and the Denizli trial order, the quarterly register and the two triggers are the means to do both.

Recommendation

Adopt the 70-30 split with Guimaraes for premium towels, subject to the three conditions, and review it quarterly against the two triggers.

References

Chopra, S., & Sodhi, M. S. (2004). Managing risk to avoid supply-chain breakdown. MIT Sloan Management Review, 46(1), 53-61.

Kraljic, P. (1983). Purchasing must become supply management. Harvard Business Review, 61(5), 109-117.

Sheffi, Y. (2005). The resilient enterprise: Overcoming vulnerability for competitive advantage. MIT Press.