Article

The Sourcing Hub and Upstream Supplier Networks

Manufacturing &amp Service Operations Management (Impact Factor: 1.71). 09/2008;

ABSTRACT In this paper, we explore how firms can manage their sourcing better by developing relationships not only with their suppliers but also with their suppliers’ suppliers. Building on our four-year empirical investigation in the auto industry, we propose the concept of the Sourcing Hub, a collaborative center involving the firm, its suppliers and raw material suppliers, as the principal alignment mechanism for managing value in upstream sourcing. We model non-cooperative and cooperative sourcing hub scenarios, anchoring to our empirical work, and examine the resulting profits along the supply chain. We detail three facets of the sourcing hub: (a) firms can supply raw material directly to their suppliers and this may be beneficial for the firm and its suppliers, (2) firms can bring their suppliers together at the sourcing hub, and the resulting cooperation between suppliers is beneficial for the suppliers and the raw material suppliers and (3) firms can decrease financing costs for raw material procurement with capital sourced at least cost at the sourcing hub. Overall, our results show that active management of upstream sourcing can add value to supply chains.

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