Efficient Supply Chains May Result from 'Sourcing Hub'
By: Phys.org January 23, 2014
Firms can manage their sourcing better by developing relationships not only with their suppliers but with their suppliers' suppliers, according to two papers co-written by a University of Illinois supply chain management expert.
The lack of communication or collaboration between the big players at either end of the supply chain spectrum prevents companies from gaining efficiencies in costs, design and materials, says Anupam Agrawal, a professor of business administration at Illinois.
"There's more power at the end of supply chains, and we found that not talking to the firm that provides your suppliers with their raw materials is not very helpful," he said. "We think that there's a lot of efficiency to be gained there."
If you're an automobile company, you're buying parts that contain steel and aluminum from small suppliers, who, in turn, buy these raw materials from another firm. And these main suppliers of raw materials, whether it's raw aluminum or raw steel, are fewer and as big, if not bigger, than the automotive firms - "as big as Ford or GM, but on the other side of the supply line," Agrawal said.
"But we find that most companies focused on producing cars and trucks don't have open lines of communication with the firms that produce steel or aluminum," he said. "They only talk to the middle men, the suppliers. The auto firms believe they should only focus on what they do best, and that it's incumbent upon their suppliers to talk to the raw material supplier."
But that's a shortsighted proposition, according to Agrawal.
"There is a lot of value in the big players at the far ends of the supply chain talking to each," he said. "As a firm, you become much more competitive."
According to the paper, the creation of a "sourcing hub" - a collaborative center involving the firm, its suppliers and raw material suppliers as a mechanism for capturing and deploying sourcing knowledge of the raw material - would be beneficial.