Analysing risk in sourcing design and manufacture of components and sub-systems to emerging markets

Abstract

This paper presents an emerging market sourcing risk assessment and management model for sourcing components and sub-systems to emerging markets. The model was developed, tested and implemented by a US automotive manufacturer but the principles and tool discussed here are broadly applicable. We gathered a comprehensive list of risk factors through an intensive literature review and subject matter expert (SME) interviews. We used a process failure mode effect analysis (PFMEA) structure to characterize the risks and developed a simulation model to quantify risk factors in terms of dollars so that an OEM can evaluate risk mitigation strategies. The spreadsheet simulation ranks causes of failures and failure modes and calculates total risk in terms of dollars. In addition to analysing risk, the model evaluates the impact of different inventory levels on the costs of delays in the supply chain. The model can also be used to evaluate and select suppliers that offer minimum risk. We demonstrate the model with a real-world case study involving a North American auto company considering sourcing a component to an emerging market.

Keywords:

• Global sourcing
• Sourcing risk analysis
• Simulation

Acknowledgements

The authors would like to express sincere gratitude to Mr Andrew Hinkly, Executive Director (Purchasing), Ford Motor Company for his valuable guidance and insight into global sourcing decision making methodology. Without his time, energy and guidance, the project would not have completed in time and reached at the implementation stage. We are indebted to him for his constant encouragement and support throughout this project.