6 Assignment 3: The Costs and Risks of Right Shoring Sandra Barrios

6

Assignment 3: The Costs and Risks of Right Shoring

Sandra Barrios

National University

SCM440 Cost and Risk in SCM

Professor James Garces

July 20, 2024

1. Based on your “Initial RightShoring Feasibility Assessment”:

What was your result? (score and the words that match your score)

Based on your 15 answers, do you agree with the recommendation provided by the tool?

Any comments on the scale shown there?

In the assessment conducted I scored a scored 54. I would strongly recommend using the TCO Risk-adjusted Calculator as soon as possible. This tool’s advice is justifiable, especially when considering the chosen company, where factors like market volatility, operational problems, compliance issues, and other ambiguities can greatly influence the total cost amounts. The score produced by this calculation probably provides a more accurate and realistic approximation of the Total Cost of Ownership (TCO) regarding these potential risks and what it costs to manage them. Varying numerical ranges are used in feasibility assessment to determine outcomes based on respondents’ inputs. However, there is still doubt about the reliability and accuracy of these ranges, and this requires further examination.

2. Based on your ONE selected “Additional Insights” resource, list the resources that directly support items from the Tool.

EPICS Report

– source: CSCMP, Univ Tennessee, IHS Markit

– frequency: Annual

– scope: Global

– level of detail: 10 regions (data); country-specific (color-code only)

– factors

o Overall Index, plus 4 factors: Economy, Politics, Infrastructure, Competency

– Other: Trends and Considerations

Weblink:https://cscmp.org/CSCMP/Research/Reports_and_Surveys/EPIC_Report/CSCMP/Educate/2020_EPIC_Report.aspx?hkey=6c6fcfff-749d-48a4-b534-15b164f200cf

3. From the page, “Summary Graph,” interpret your results, focusing on the relationship between Cost and Risk.

a. End with your clear — and justified — recommendation for the future sourcing location for your product (you can use any data in the Tool, in particular the final “Detailed Results” table, in your justification).

The “Summary Graph” shows a significant relationship between the cost and risk associated with different sourcing locations: These three cities include Bay City, Monterey, and Hang Zhou. Among all automotive cities, Bay City has the highest total cost of ownership while exposing the lowest risk. Consequently, what is suggested here means that although risk-free, it is also expensive. Monterey displays a moderate total cost and a risk value of 0.5 mid; therefore, Monterey can be considered as taking a more balanced position while characterizing as moderate given the total cost and the level of risk. In contrast, Hangzhou incurs the intermediate bearing capacity and the lowest total cost of ownership but has a higher risk. This suggests it is cheaper but has higher risks than the first one.

As shown in the detailed results table, to consider cost and risk, the recommended sourcing location for the product is Monterey. This recommendation is justified as Monterey offers reasonable and manageable risk to give an appropriate balance between sustainable operations and cost efficiency (Battisti et al. 2020). Thus, the organization can get the moderate cost of Monterey while maintaining the risk within reasonable limits to guarantee financial and operational safety.

4. Recommend specific areas in this model that procurement can directly reduce the Total Cost of Ownership. Briefly present your recommendation for each item identified.

Supplier Negotiation: New product development can strike long-term deals with suppliers in terms of volume, enabling one to get discounted prices that cut bills by almost half. For example, using this strategy, Bay City could buy its materials at cheaper rates because long-term relationships come with price risks that reduce production costs considerably.

Inventory Management: One method of avoiding the accumulation of holding costs is to adopt the just-in-time inventory system. A company with relatively high stock costs, like Hangzhou, could benefit from it (Thuy et al., 2022). Hangzhou can cut down on its storage costs and improve its functional effectiveness by accepting goods only in the amounts needed for production.

Supplier Diversification: Purchasing from various suppliers can minimize reliance on a specific supplier and enhance the bargaining capability. For instance, Monterey could expand the list of suppliers to reduce the transition costs. Diversification implies that Monterey’s sourcing channels are many; hence, they effectively bargain for better terms and always have backup suppliers in case of disruption.

Technology Adoption: Lower purchasing transaction costs; this can be reduced through e-procurement systems. It is advised that all the locations adopt such systems to improve efficiency and relieve the procurement processes. The adoption of this technology can significantly result in savings in the expenses of overhead and administrative tasks.

5. Where in this tool can Blockchains benefit cost or risk reduction? For each item identified, briefly explain the benefit.

Transparency: Blockchain technology makes the supply chain more transparent, which reduces fraud and errors. For instance, Bay City can use blockchain to guarantee the genuineness of its high-value parts, thereby reducing operational risks (Thuy et al. 2022). By recording and tracking transactions in the blockchain, trust and accountability in the supply chain are enhanced.

Traceability: The application of blockchain enhances product traceability, which will prevent fake products from being sold and introduced to the market. To sum up, Monterey can use blockchain in the supply chain to record the source and quality of the products to minimize the occurrence of quality issues, which are considered influential in supply chain risks.

Efficiency: Blockchain, most importantly, helps to minimize transaction costs; there is no need for intermediaries. Blockchain technology was proposed to be adopted in Hangzhou to increase the flow of transactions while simultaneously decreasing the bureaucratic burden. By desensitizing and safeguarding transactions, blockchain can reduce costs and increase operational effectiveness.

6. What other IT tools can reduce cost and/or risk? For each item identified, briefly explain the benefit.

ERP Systems: ERP systems connect several organizational processes to enhance operations while minimizing expenses. With high production costs, Bay City could adopt an ERP system to manage a centralized database, resulting in efficient resource allocation and improved decision-making processes.

Supply Chain Management Software: This software increases supply chain transparency to minimize risks and enhance decision-making. Monterey can employ supply chain management software to cover its flows and minimize transition costs. This tool can be valuable in increasing efficiency and decreasing vulnerability because it offers current details on supply chain processes.

Predictive Analytics: Through predictive analytics, changes in the market can be foreseen, and procurement plans can be altered to reduce risks. Hangzhou can apply big data analytics for demand forecasting, which will help the organization minimize the costs of in-transit and obsolescence. This can help improve inventory control and associated costs since it is proactive.

7. Where in this tool can Lean and Six-Sigma principles benefit cost and/or risk? For each item identified, briefly explain the benefit.

Waste Reduction: Lean principles aim to reduce waste in manufacturing processes, lowering costs. Bay City could implement Lean to reduce overhead and inventory expenses since the organization could redesign its manufacturing processes to incorporate Lean (Huo et al., 2021). Understanding and eliminating activities that do not contribute value can help Bay City enhance business outcomes.

Continuous Improvement: Six Sigma helps develop a consistent organizational culture that strives to eliminate defects and related expenses. It can also apply Six Sigma methodologies, for example, to fine-tune its quality control and reduce costs of obsolescence and safety stocks. This systematic approach to quality improvement can help improve the reliability of products as well as customer satisfaction.

Process Optimization: Six Sigma and Lean strategies are used to analyze and enhance processes and minimize deviations and threats. In the case of Hangzhou, Lean Six Sigma could be effectively used to reduce transition and freight costs within the supply chain (Huo et al. 2021). Hangzhou can obtain more standardized and less expensive results through a process improvement approach.

Personal Assessment of the Tool

This tool enriches the framework for identifying the relationships between cost and risk in sourcing decisions. This makes it easier to understand the various costs and the related risks depending on the location across various organizations. The tool improves strategic management by integrating such technologies as blockchain and predictive analysis. Continuous improvements are also made through using Lean and Six Sigma principles in business operations. In summary, the tool is very useful for coordinating cost reduction and risk mitigation procurement strategies.

References

Battisti, E., Bollani, L., Miglietta, N., & Salvi, A. (2020). The impact of leverage on capital and market value cost: Evidence from Sharīʿah-compliant firms. Management Research Review, 43(9), 1081-1096.

Thuy, C. T. M., Khuong, N. V., Canh, N. T., & Liem, N. T. (2022). The mediating effect of stock price crash risk on the relationship between corporate social responsibility and cost of equity moderated by state ownership: Moderated‐mediation analysis. Corporate Social Responsibility and Environmental Management, 29(5), 1384-1395.

Huo, X., Lin, H., Meng, Y., & Woods, P. (2021). Institutional investors and cost of capital: The moderating effect of ownership structure. PLoS One, 16(4), e0249963.