Answer to Q1
Factors that can affect the strategic sourcing are political, legal, and cultural differences between the countries. They may also have to manage problems such as transportation, lack of capacity or technology, and weakness in management systems. Other factors include having to deal with customs, trade regulations, and language barriers. There is also a risk of leakage of confidential information due to which the competitive advantage of the companies is reduced. Due to global sourcing from different suppliers, international logistics is an issue. As the sourcing is from manufacturers from Asian countries and the distribution centers are elsewhere, the problem due to unreliable transportation and logistics network in these countries could reduce the reliability of supplies. While cost savings is the reason for sourcing of materials globally, the savings may be offset by other costs. Due to the differences in culture, the different time zones, and other reasons, there may be hidden costs to sourcing from these global sources. To these costs, the costs of monitoring these manufacturers have to be added. The countries from where the sourcing is being done may not be politically stable, or may be in political turmoil. This has to be carefully assessed before the decision is taken. If there are any quality glitches, huge financial penalties might have to be paid and the brand name could be damaged. The design, engineering, and material knowledge, which is proprietary, could be exposed to these manufacturers and they may misuse this, resulting in the loss of intellectual property for the sourcing company.
Issues such as reliability, which depend on the on-time delivery of goods so that longer-than-expected lead times can be avoided. The life of the procured product depends on its quality, which in turn affects the warranty and repeat sales. When the materials fail, they have to be returned to the manufacturer and the manufacturer has to resupply them. Due to the global nature, this can take a long time. If there is a variation in the cost of purchased products or if there are risks due to supplier uncertainties or unusual lead time variations, then the cost of the finished goods can vary or the goods may not be available where they are needed and when they are needed. To mitigate this, some countermeasures have to be implemented and these will introduce additional costs.
Answer to Q2
Figure 1: Supply/Demand misalignment
Source:
The demand variation affects the operations of the distribution centers (DC). The DCs will have to manage their space due to the seasonality of the demand of the goods. As South Face has products for all seasons, this volatility is reduced to some extent, but it still affects the DCs as the demand fluctuation means that there can either be inventory buildups or empty DCs. Due to the variable demand labor issues also arise as the demand for labor when the DC is full and when it is near empty varies too much if the demand is not smoothed out, it becomes difficult to effectively manage the space and retain labor throughout the year. Since the transportation costs directly affect the landed cost of the product, variations in the transportation costs affect the cost of the goods and profitability.
This is a vicious cycle and this is perpetrated as the uncertainty keeps getting increased and more and more inventories are held reducing the flexibility of the company as well as increasing the costs unnecessarily. Better demand management by either external demand balancing methods or internal demand balancing methods. The external demand balancing method includes increasing the lead time for supplying products that are not available and making available alternate products that are in stock or providing discounts for products which are in stock but have little demand so that demand can be stimulated. By utilizing an Enterprise Resource Planning software, the demand forecasting can be improved. The coordination between the manufacturers and the entire supply chain can improve by using electronic data interchange (EDI) technology. The possibility of using e-sourcing or e-procurement can be evaluated.
Answer to Q3
South Face has problems with demand forecasting, variable transportation costs, and inconsistent transportation due to which there were instances when the required stock was not available. They are also facing problems due to increase in competition in this seasonal clothing space. It is well known that logistics can provide the differential advantage when companies have similar product offerings. Since logistics is an integration of many activities such as inventory management, order processing, warehousing, and transportation, it is difficult to identify which unique process resulted in the improved performance. Due to this level of integration that is happening internally and externally, the competitors find it difficult to duplicate the logistics advantage, unlike the other advantages discussed previously. This is the reason the role of logistics in the company has become strategically very important
Answer to Q4
The current contracts have to be reexamined and if there are any loopholes about IP protection are there in the contracts, they have to be closed. The past infringements cannot be acted upon if there are loopholes in the contracts. New agreements have to be drafted with non-disclosure and non-compete clauses included in them. They also should have strict IP protection clauses and IP ownership details. If new contracts cannot be drawn for some reason, then the vendor has to be confronted about it. The vendor contract has to be terminated and all IP related assets have to be confiscated. This will send a message that the company does not tolerate IP theft and it will deter other vendors from perpetrating the IP theft. If this does not encourage the vendor to stop the IP infringement, then the vendor should be prosecuted. The U.S. have Customs-Trade Partnership against Terrorism (C-TPAT) and U.S. Customs and Border Protection (CBP) agencies. Companies and countries that are partners to C-TPAT agree to some supply chain standards and that includes protecting IP rights. When selecting a supplier, there can be a clause that the organization must be partners with C-TPAT so that it can be reasonably assumed that the IP will be protected and if there is a theft, it is prosecuted.
References
Cho, J., & Kang, J. (2001). Benefits and challenges of global sourcing: perceptions of US apparel retail firms. International Marketing Review, 18(5), 542 - 561.
Coyle, J. J., Langley, J. C., Novack, R. A., & Gibson, B. J. (2013). Supply chain management: a logistics perspective. Mason, OH: South-Western.
Jiang, C., & Tian, Y. (2009). Problems and challenges of global sourcing: a study of Chinese manufacturing enterprises. Jönköping: Jönköping International Business School.
Kendall, N. M. (2000, June 22). Pardon me. was I speaking French? Retrieved from csmonitor.com: http://www.csmonitor.com/2000/0622/p22s2.html
Mentzer, J. T., & Williams, L. R. (2001). The role of logistics leverage in marketing strategy. Journal of Marketing Channels, 8(3-4), 29-47.
