Components of Sourcing Decisions In-house or outsource Perform a task in-house or outsource it to a third party Supplier selection Number of suppliers, evaluation and selection criteria, direct negotiations or auction Procurement The supplier sends product in response to customer orders Sourcing Overall trade-off: Increase the supply chain surplus Increase the size of the total surplus to be shared across the supply chain Impact of sourcing on sales, service, production costs, inventory costs, transportation costs, and information cost Outsource if it raises the supply chain surplus more than the firm can on its own Keep function in-house if the third party cannot increase the supply chain surplus or if the outsourcing risk is significant Pricing Role in the Supply Chain Pricing determines the amount to charge customers for goods and services Affects the supply chain level of responsiveness required and the demand profile the supply chain attempts to serve Pricing strategies can be used to match demand and supply Pricing Role in the Competitive Strategy Firms can utilize optimal pricing strategies to improve efficiency and responsiveness Pricing strategies vary to meet different customer responsiveness requirements Components of Pricing Decisions Pricing and economies of scale The provider of the activity must decide how to price it appropriately to reflect these economies of scale Everyday low pricing versus high-low pricing Different pricing strategies lead to different demand profiles that the supply chain must serve Components of Pricing Decisions Fixed price versus menu pricing If marginal supply chain costs or the value to the customer vary significantly along some attribute, it is often effective to have a pricing menu Can lead to customer behavior that has a negative impact on profits Pricing Overall trade-off: Increase firm profits Understand of the cost structure of performing a supply chain activity and the value this activity brings to the supply chain
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