Journal on Policy & Complex Systems Vol. 2, Issue 2, Fall 2015 | Page 27

Journal on Policy and Complex Systems
Background and Literature Review

In this section , sourcing strategies that are common to traditional organizations

are described , and the strengths and weaknesses associated with these strategies are reviewed . This is followed by a description of the sourcing strategies that have been used by VBOs , as well as the unique challenges that VBOs face with respect to supplier selection .
Traditional Sourcing Strategies

Traditionally , supply chain management strategies have focused strictly on

financial objectives , such as maximizing profit / market share or minimizing exposure to risk . With these objectives in mind , a supply chain manager must decide on an appropriate sourcing strategy , which includes the size of the organization ’ s supply base , as well as the criteria by which suppliers are selected . The question of how many suppliers an organization should use and how business should be allocated to these suppliers is an ongoing topic of debate , and the answer depends on many factors . One strategy involves single sourcing , which is the process of selecting and using only one source of supply for all inputs of a particular type . By contrast , with a dual or multiple sourcing strategy , two or more suppliers are used as sources of the same commodity . Determining which of these sourcing alternatives is best involves difficult tradeoffs and requires a careful multi-objective analysis of the buying organization ’ s preferences , with respect to short- and long-term costs and risk management , and an assessment of the industry environment in which the organization operates . Although much of the supply chain management literature treats these sourcing strategies as mutually exclusive , in reality , this is not necessarily true . In fact , Gadde and Snehota ( 2000 ) argue that a balanced combination of single and multiple sourcing is often a practical strategy .
Traditionally , multiple sourcing has been used in supply chain management as a means of encouraging competition among multiple suppliers , wherein a buyer plays suppliers against one another to obtain the best terms , including price , delivery , and quality ( Treleven & Schweikhart , 1988 ). This competition increases a buyer ’ s negotiating power through the perceived threat of giving its business to another supplier ( Ramsay & Wilson , 1990 ). Also , supplier power over a buyer is weakened when the buyer splits its total requirements among multiple sources ( Newman , 1989 ). Li and Debo ( 2009 ) provide several examples of organizations that follow this strategy for sourcing components , including Apple and Microsoft , in order to maintain power over suppliers and keep prices low .
Multiple sourcing also allows a buyer to spread risk across several suppliers . Supply chain risks can be classified as either operational risks , which are inherent to the supply chain and its participants ( e . g ., insufficient supplier capacity , quality
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