9. Supply Network Design and Strategic Sourcing

Introduction and Strategic Context

Supply network design and strategic sourcing determine how an organisation creates, obtains, moves, and controls value across its supply chain. They are strategic because decisions about facilities, suppliers, production capacity, transportation lanes, inventory positioning, contracts, and international trade often commit substantial capital and remain difficult to reverse. A poorly located warehouse or an unsuitable supplier may impose higher costs and weaker service for many years. Conversely, a well-designed network can improve resilience, customer responsiveness, working-capital performance, and competitive advantage.

Supply network design concerns the configuration of nodes and relationships through which materials, information, money, and returns flow. Nodes may include suppliers, factories, ports, distribution centres, fulfilment centres, retailers, repair facilities, and customers. Strategic sourcing concerns the systematic selection and management of external sources for goods and services. The two subjects are interdependent. A sourcing decision affects transport distances, inventory requirements, customs exposure, quality risk, and facility capacity; a network decision affects which suppliers are economically and operationally feasible.

The central managerial challenge is not to minimise an isolated cost. It is to design a network that balances total cost, service, risk, flexibility, sustainability, compliance, and long-term strategic objectives. This chapter develops structured methods for making that balance explicit.

Learning Objectives

After studying this chapter, the learner should be able to:

1. Explain the strategic role and key terminology of supply network design and sourcing.

2. Evaluate facility-location and network-configuration alternatives using total-cost and service considerations.

3. Apply make-or-buy, supplier-selection, and total-cost-of-ownership models.

4. Compare sourcing strategies, contracting choices, and supplier-collaboration arrangements.

5. Assess global trade, regulatory, ethical, resilience, and sustainability implications.

6. Interpret the use of analytics, digital tools, and scenario analysis in strategic decisions.

7. Develop and defend an integrated network and sourcing recommendation.

The Supply Network as a Strategic System

A supply chain is often represented as a linear sequence, but real business systems are networks. A manufacturer may buy components from several tiers, serve multiple markets through different channels, and return products through a reverse-logistics system. Decisions in one part of the network can shift costs and risks elsewhere. For example, a low-cost overseas supplier may require larger order quantities, longer transit times, more safety stock, and greater exposure to disruption. The purchase price is therefore only one element of economic performance.

Strategic network design begins with the business proposition. A firm selling emergency medical products may prioritise availability and response time, whereas a fashion retailer may prioritise speed, variety, and postponement. A commodity producer may place greater emphasis on scale and unit cost. The appropriate network is consequently contingent on customer requirements, product characteristics, demand uncertainty, competitive positioning, and regulatory conditions.

A useful distinction is between efficiency and responsiveness. Efficient networks seek low cost through consolidation, standardisation, high utilisation, and economical sourcing. Responsive networks emphasise proximity, flexible capacity, short lead times, and rapid information flows. Neither orientation is universally superior. Strategic design seeks an economically justified combination, often through segmentation: critical products may be sourced redundantly and held near customers, while predictable products may be consolidated in fewer facilities.

Core Concepts and Terminology

Supply network: The interconnected set of organisations, facilities, processes, and flows involved in supplying and delivering products or services.

Node: A physical or organisational point in a network, such as a supplier, plant, warehouse, port, or customer market.

Network configuration: The number, location, capacity, ownership, and roles of facilities and the links connecting them.

Strategic sourcing: A structured process for analysing expenditure, markets, suppliers, risks, and relationships to obtain long-term value.

Single sourcing: Purchasing a category from one principal supplier, usually to gain volume leverage or simplify coordination.

Multiple sourcing: Using two or more suppliers for the same requirement to improve competition, capacity, or continuity.

Dual sourcing: A deliberate allocation of demand between two qualified suppliers.

Nearshoring: Procuring or producing in a relatively nearby country or region to reduce distance and lead-time exposure.

Offshoring: Relocating procurement or production to a distant foreign location, commonly to access cost or capability advantages.

Make-or-buy decision: A choice between internal production or service provision and external procurement.

Total cost of ownership (TCO): The complete cost of acquiring, using, supporting, and disposing of a product, service, supplier, or asset.

Landed cost: Product cost plus costs incurred to bring goods to the specified destination, such as freight, insurance, duties, and handling.

Supplier segmentation: Classifying suppliers according to factors such as expenditure, business impact, supply risk, capability, and relationship potential.

Postponement: Delaying final configuration, packaging, or differentiation until demand is more certain or geographically known.

Resilience: The ability of a network to prepare for, absorb, recover from, and adapt to disruption.

Incoterm: A standardised international trade rule defining selected buyer and seller responsibilities, costs, and transfer of risk.

Service level: The probability or proportion of demand fulfilled under a specified performance definition.

Should-cost analysis: An analytical estimate of what a product or service ought to cost based on materials, labour, overhead, process, and market conditions.

Designing the Physical Network

Defining the decision and its boundaries

A network study must first specify the planning horizon, products, markets, demand scenarios, service requirements, cost categories, and constraints. A common error is to optimise only a visible logistics cost while excluding taxes, inventory, quality failures, supplier-development costs, carbon effects, or the cost of lost sales. The model should also distinguish fixed costs from variable costs and one-time transition costs from recurring operating costs.

Demand should normally be represented through scenarios rather than a single forecast. A base case may be supplemented by high-growth, low-demand, disruption, fuel-price, exchange-rate, or capacity-constrained scenarios. Strategic decisions are made under uncertainty; therefore, the best design is not always the design with the lowest expected cost. Flexibility and survivability may justify a slightly higher cost in the base case.

Facility-location considerations

Facility location involves more than geographical centrality. Important variables include:

• proximity to customers and suppliers;
• transport modes, port access, and infrastructure quality;
• labour availability, productivity, and industrial relations;
• land, construction, utilities, taxes, and operating costs;
• customs procedures, trade zones, and regulatory requirements;
• energy reliability, environmental conditions, and climate exposure;
• political stability, security, and disaster risk; and
• scalability and the possibility of future expansion.

A location that appears attractive on labour cost may be unsuitable if congestion, unreliable utilities, poor quality, or long border delays create hidden costs. Location analysis should therefore compare alternatives using the service-cost-risk profile of the entire network.

Configuration alternatives

A firm may choose a centralised network with relatively few large facilities, a decentralised network with facilities near major markets, or a hybrid arrangement. Centralisation generally supports inventory pooling, standardised processes, and lower facility duplication. Decentralisation may reduce outbound distance and delivery time, but it can increase inventory, management complexity, and underutilised capacity.

Other choices include direct shipment, cross-docking, regional distribution, postponement, and hub-and-spoke arrangements. Cross-docking can reduce storage when inbound and outbound flows are synchronised. Postponement can reduce finished-goods variety and obsolescence by completing customisation closer to demand. The appropriate choice depends on demand variability, product value, handling characteristics, and required response time.

Quantitative models

A basic facility-location model minimises total cost subject to demand, capacity, and service constraints. In simplified form:

Total cost = fixed facility cost + transportation cost + inventory cost + handling cost + sourcing cost + tax and duty cost + expected disruption cost.

A transportation or distribution-cost matrix can compare the cost of serving each market from each candidate facility. More advanced mixed-integer optimisation models use binary variables for opening facilities and continuous variables for product flows. Constraints may represent capacity, minimum service levels, supplier qualifications, customs restrictions, and single- or multiple-sourcing policies.

The model is a decision aid, not a substitute for judgement. Results should be stress-tested, checked for data quality, and interpreted alongside qualitative issues such as labour relations, community impact, management capability, and strategic flexibility.

Strategic Sourcing and Supplier Selection

Strategic sourcing begins with spend and supply-market analysis. Spend should be classified by category, supplier, location, specification, business unit, and contract status. The organisation then studies demand, supplier economics, technological developments, capacity, concentration, substitutes, entry barriers, and geopolitical exposure. A category strategy may seek competition, collaboration, standardisation, innovation, local supply, or a combination of these objectives.

Supplier selection should use explicit criteria rather than purchase price alone. A weighted scoring model might evaluate quality, total cost, delivery reliability, technical capability, capacity, financial strength, sustainability, compliance, cybersecurity, innovation, and geographic risk. Weights should reflect the category’s strategic importance. For a safety-critical component, quality and continuity may receive greater weight than a small price difference.

The scoring process should be supported by evidence: audits, financial statements, process-capability data, references, sample testing, site visits, and performance history. Scores are not automatically objective. Weight selection, data reliability, and evaluator judgement can influence outcomes. Sensitivity analysis should test whether a supplier remains preferred when assumptions or weights change.

Make-or-buy analysis

The make-or-buy decision compares the relevant long-term cost and strategic consequences of internal and external provision. Relevant costs may include avoidable internal costs, supplier price, tooling, transportation, quality inspection, transaction costs, inventory, contract management, switching costs, and expected risk. Allocated overhead should not be treated as avoidable merely because it appears in accounting records.

Strategic considerations include protection of intellectual property, control of technology, supply continuity, internal capability, capacity flexibility, speed of innovation, and the importance of the activity to competitive differentiation. Outsourcing a routine service may release management attention, while outsourcing a core capability may create dependency and weaken learning.

A sound decision may also be staged. The firm could retain a minimum internal capability while outsourcing incremental volume, or use a pilot contract before full transfer. This creates an option to learn and reduces irreversible commitment.

Total cost of ownership

TCO extends analysis beyond quoted price. For a purchased component, it may include:

TCO = purchase price + freight and duties + inventory carrying cost + quality and failure cost + ordering and administration + supplier-development cost + compliance cost + switching and end-of-life cost.

The calculation should reflect time. A low unit price combined with a long lead time may increase pipeline inventory and safety stock. A supplier with variable quality may create warranty claims, line stoppages, returns, and reputational damage. Conversely, a higher-priced supplier may reduce these costs through reliable delivery, engineering support, or better packaging.

TCO should not be used to create false precision. Some risks are difficult to quantify, so scenario ranges, probability-weighted estimates, and qualitative risk registers should accompany the financial model.

Contracts, Collaboration, and Governance

A sourcing decision becomes operational through a contract and a relationship-management system. Contract design should align incentives, allocate risks transparently, and establish measurable performance expectations. Key provisions may cover price and adjustment mechanisms, forecasts, minimum volumes, capacity reservation, lead times, quality standards, service credits, intellectual property, confidentiality, audit rights, data protection, business continuity, termination, dispute resolution, and change control.

A fixed-price contract can provide budget certainty but may be unattractive to a supplier facing volatile input costs. A cost-plus arrangement may support flexibility but can weaken cost discipline. Index-linked pricing, open-book costing, gain-sharing, and volume-band mechanisms can provide more balanced arrangements when conditions are uncertain. Contract terms should be consistent with the organisation’s actual ability to monitor and enforce them.

Collaboration is appropriate when both parties can create value through shared information, joint planning, product development, process improvement, or coordinated investment. Collaborative practices include supplier relationship management, collaborative planning and forecasting, vendor-managed inventory, joint quality programmes, and early supplier involvement in design. Collaboration requires governance: defined decision rights, data standards, escalation procedures, performance reviews, and protection against opportunistic behaviour.

Supplier segmentation helps determine relationship intensity. Transactional suppliers may be managed through competitive bidding and standard specifications. Bottleneck suppliers require continuity plans and alternative sources. Strategic suppliers may justify executive sponsorship, joint investment, shared improvement targets, and long-term development. Segmentation should be reviewed when technology, demand, risk, or the supplier’s role changes.

Global Trade and Responsible Sourcing

Global sourcing can provide access to lower-cost production, specialised capability, raw materials, and new markets. It also introduces longer lead times, border procedures, currency exposure, trade-policy risk, political uncertainty, cultural differences, and increased difficulty of oversight.

International contracts should specify the applicable Incoterm, named place, documentation responsibilities, transport arrangements, insurance, customs obligations, and transfer of risk. An Incoterm does not by itself determine ownership, payment, product quality, or all legal responsibilities. Managers must therefore coordinate trade terms with the sales contract, insurance arrangements, customs advice, and internal controls.

Compliance areas may include import and export controls, sanctions, product standards, customs valuation, origin rules, anti-bribery requirements, labour law, modern-slavery prevention, environmental regulation, and data protection. Due diligence should extend beyond direct suppliers where material risks exist in lower tiers. A low-cost source that depends on forced labour, illegal extraction, unsafe conditions, or environmental damage creates legal, ethical, financial, and reputational exposure.

Responsible sourcing is not limited to supplier questionnaires. Effective governance combines risk-based screening, contractual standards, independent verification, worker grievance channels, corrective-action plans, and escalation for serious violations. Immediate termination is not always the best remedy if it simply displaces vulnerable workers; remediation, protection, and credible timelines may produce better outcomes, although severe abuse requires decisive action.

Digital Tools, Analytics, and Resilience

Digital network-design platforms combine geographic information, demand forecasts, transport rates, facility costs, supplier data, and scenario models. They can visualise flows, identify bottlenecks, estimate emissions, and compare network alternatives. Supplier-management systems support onboarding, certificates, performance dashboards, risk alerts, and contract visibility.

Advanced analytics can improve decisions through probabilistic demand models, inventory optimisation, simulation, and optimisation algorithms. Machine learning may identify patterns associated with late delivery, quality defects, financial distress, or disruption. However, algorithmic outputs depend on data quality and assumptions. Automated recommendations should be explainable, reviewed by knowledgeable managers, and protected against biased or incomplete data.

Resilience analysis asks how quickly the network can continue or recover after a disruption. Useful measures include time to survive, time to recover, capacity at risk, supplier concentration, alternative-source qualification time, and revenue exposed to a node or lane. Strategies include dual sourcing, regional capacity, safety stock for critical items, common specifications, postponement, flexible manufacturing, visibility beyond tier one, and prearranged emergency logistics.

Resilience has a cost. Holding duplicate capacity or inventory may reduce short-term efficiency. The decision should compare the cost of protection with the probability and consequence of disruption, while recognising that some extreme events cannot be estimated reliably through historical data alone.

Applied Illustrative Case: Northstar Medical Devices

Background

Northstar Medical Devices, a fictional mid-sized manufacturer, produces sterile diagnostic cartridges for hospitals in three regions. Demand has grown, but customers increasingly require delivery within forty-eight hours. Northstar currently manufactures all cartridges at one domestic plant and buys a specialised sensor from a single overseas supplier. The sensor has a low purchase price but a twelve-week replenishment lead time.

Situation and problem

A port disruption caused a six-week delay in sensor shipments. Northstar avoided a complete stockout only by expediting freight and reallocating inventory between customers. The event revealed three weaknesses: dependence on one supplier, concentration of production at one plant, and insufficient visibility into lower-tier materials. Management must decide whether to expand the existing plant, establish a regional finishing centre, qualify a second sensor supplier, or redesign the product.

Analysis

The project team defines service, quality, regulatory, and continuity requirements before comparing costs. It develops three demand scenarios and identifies the sensor as a bottleneck item because it is specialised, safety-critical, and difficult to substitute. Purchase-price analysis favours the existing supplier. TCO analysis adds expedited freight, safety stock, regulatory qualification, line-change costs, and the expected cost of disruption. The financial advantage narrows considerably.

A network model compares one central plant with a central plant plus a regional finishing centre. The second option requires additional fixed cost but reduces delivery time and allows semi-finished inventory to be configured nearer to demand. It also creates a second operating location, which improves recovery options but introduces management and validation costs.

Supplier assessment shows that a second supplier has a higher quoted price but operates in a different region and can provide a shorter lead time after qualification. Technical and regulatory approval will take several months. The team therefore considers a staged dual-sourcing plan rather than an immediate full transfer.

Strategy and solution

Northstar adopts four linked actions. First, it qualifies the second sensor supplier and allocates an initial minority share of demand to preserve learning and maintain competitive tension. Second, it increases strategic safety stock for sensors while reducing unnecessary finished-goods variety through postponement. Third, it establishes a regional finishing and postponement centre, subject to a pilot and regulatory approval. Fourth, it introduces a supplier-continuity contract requiring capacity information, notice of major changes, business-continuity plans, and audit access.

The company also creates a cross-functional governance team involving procurement, operations, quality, regulatory affairs, finance, logistics, and commercial management. Performance is reviewed through service, quality, inventory, total cost, and recovery-time measures rather than unit purchase price.

Outcome

In the illustrative case, the new design increases routine operating cost but lowers exposure to a single point of failure and improves response for priority markets. The decision is not justified by cost reduction alone. It is justified by a combination of service value, regulatory continuity, risk reduction, and strategic flexibility. The case also demonstrates that sourcing, network design, inventory, and product architecture must be evaluated together.

Learning points

1. A low purchase price can conceal substantial network cost and risk.

2. Critical suppliers require qualification, continuity planning, and governance.

3. Dual sourcing is useful only when alternative suppliers are genuinely capable and approved.

4. Postponement can improve responsiveness without duplicating every finished product.

5. Strategic decisions should be staged when information is incomplete and switching costs are high.

Risks, Limitations, and Common Errors

One common mistake is treating the model’s lowest-cost answer as the optimal decision. A model may omit disruption, organisational capability, implementation difficulty, or social impact. Another error is relying on inaccurate master data: incorrect freight rates, capacities, lead times, or supplier locations can materially distort results.

Managers also overvalue supplier diversification without considering whether suppliers share the same sub-tier, port, energy source, or geopolitical exposure. Two suppliers may therefore provide only apparent redundancy. Conversely, excessive fragmentation can reduce volume leverage, complicate quality control, and increase transaction costs.

Other frequent errors include selecting a site before defining service requirements, confusing risk transfer with risk elimination, using vague contract metrics, failing to involve operations and quality in sourcing, and ignoring transition costs. Strategic sourcing can also damage supplier relationships when negotiations focus only on annual price reductions and disregard supplier economics. Unrealistic demands may lead to quality deterioration, hidden substitutions, or supplier exit.

Current Developments and Best Practices

Recent strategic practice increasingly emphasises regionalisation, multi-tier visibility, supply-chain finance, circularity, and carbon-aware network design. Firms are assessing not only cost and service but also emissions, water use, packaging, repairability, recycled content, and end-of-life recovery. Regulatory requirements in many markets are strengthening expectations for traceability and responsible supply-chain conduct.

Effective practice generally includes the following:

• begin with customer and business-strategy requirements;
• use total cost and scenario analysis rather than purchase price alone;
• segment products and suppliers by value, risk, and strategic importance;
• validate model assumptions with operational and commercial experts;
• combine quantitative optimisation with qualitative judgement;
• maintain qualified alternatives for critical items and lanes;
• align contracts, incentives, data, and governance;
• test disruption scenarios and update continuity plans;
• measure supplier performance through balanced scorecards; and
• review the network periodically as demand, technology, regulation, and risk change.

Chapter Summary

Supply network design determines the structure and flows of the logistics system, while strategic sourcing determines how external capabilities and materials are obtained and governed. Both require an integrated view of cost, service, capacity, risk, flexibility, sustainability, and compliance. Facility-location and network models can compare alternatives, but their value depends on sound data, realistic constraints, scenario analysis, and managerial interpretation.

Make-or-buy decisions should consider relevant economic costs as well as capability, control, innovation, and dependency. Supplier selection should use evidence-based criteria and total cost of ownership. Contracts must allocate risks and incentives clearly, while collaboration should be supported by governance and information discipline. Global sourcing requires careful attention to trade rules, ethical conduct, environmental responsibility, and multi-tier visibility. Digital analytics can improve modelling and supplier monitoring, but human judgement remains essential. The strongest decisions are staged, resilient, and aligned with the organisation’s strategic promise to customers.

Key Terms

Supply network: An interconnected system of organisations, facilities, processes, and flows supporting supply and delivery.

Network configuration: The arrangement, roles, capacities, and connections of network facilities.

Strategic sourcing: Long-term analysis and management of purchasing categories and supplier relationships.

Facility location: Selection of geographical sites for production, storage, fulfilment, or service activities.

Make-or-buy: The decision to provide an activity internally or obtain it from an external supplier.

Total cost of ownership: All acquisition, operating, support, risk, and disposal costs associated with an option.

Landed cost: Cost of a product delivered to a destination, including transport, duties, insurance, and handling.

Supplier segmentation: Classification of suppliers according to value, risk, capability, and relationship requirements.

Single sourcing: Reliance on one principal supplier for a requirement.

Dual sourcing: Deliberate allocation of demand between two qualified suppliers.

Postponement: Delaying final product differentiation until demand or destination is clearer.

Resilience: Capacity to absorb, recover from, and adapt to disruption.

Incoterm: International trade rule defining selected buyer and seller obligations and risk transfers.

Should-cost analysis: Estimate of economically justified cost based on process and market drivers.

Supplier relationship management: Structured governance of supplier performance, development, risk, and collaboration.

Scenario analysis: Evaluation of decisions under different demand, cost, risk, or disruption conditions.

Supply concentration: Degree to which supply depends on a small number of sources, locations, or lanes.

Postponement centre: Facility where final configuration or customisation is completed near demand.

Review Questions

Short Answer Questions

1. Why is supply network design considered a strategic rather than purely operational decision?

2. Distinguish between landed cost and total cost of ownership.

3. What is the purpose of supplier segmentation?

4. Explain the role of postponement in network design.

5. Identify four factors that should be considered in facility location.

Long Answer Questions

1. Explain how centralised and decentralised distribution networks differ in cost, service, inventory, and resilience implications.

2. Describe a structured strategic-sourcing process from spend analysis through supplier governance.

3. Discuss the economic and strategic factors involved in a make-or-buy decision.

4. Explain how contracts and collaboration can align supplier incentives under uncertain demand and input costs.

5. Analyse the responsibilities of a firm undertaking global sourcing, including trade compliance, ethics, sustainability, and lower-tier visibility.

Analytical / Application Questions

1. A firm can choose one low-cost overseas supplier or two regional suppliers with higher prices. Design a TCO and risk framework to compare the alternatives and state what additional data you would require.

2. A network model recommends closing a regional warehouse, but managers fear longer delivery times and disruption exposure. How would you validate or challenge the recommendation?

3. Using the Northstar Medical Devices case, propose performance measures and governance arrangements for the first year after implementing dual sourcing and a regional postponement centre.

22. Multiple Choice Questions with Answers

Question 1

Which statement best explains why network design and strategic sourcing should be evaluated together?

A. Sourcing decisions affect only purchase price, while network decisions affect only transport.

B. Supplier choices influence transport, inventory, risk, capacity, and facility requirements.

C. Network design eliminates the need for supplier evaluation.

D. The two decisions are independent when demand is uncertain.

Correct Answer: B. Supplier choices influence transport, inventory, risk, capacity, and facility requirements.

Question 2

A company delays final product configuration until regional demand is known. Which concept is being applied?

A. Postponement

B. Single sourcing

C. Should-cost analysis

D. Cross-subsidisation

Correct Answer: A. Postponement

Question 3

Which cost is most likely to be excluded from a simple purchase-price comparison but included in total cost of ownership?

A. Quoted unit price

B. Supplier name

C. Expected cost of quality failures and expedited freight

D. Product description

Correct Answer: C. Expected cost of quality failures and expedited freight

Question 4

A supplier has the lowest price but unreliable delivery and long lead times. Which response is most analytically appropriate?

A. Select it automatically because price is the only objective measure.

B. Compare alternatives using inventory, disruption, quality, and logistics costs.

C. Ignore delivery performance if the supplier is overseas.

D. Reject all quantitative analysis.

Correct Answer: B. Compare alternatives using inventory, disruption, quality, and logistics costs.

Question 5

What is a principal advantage of inventory pooling in a centralised network?

A. It always shortens delivery distance to every customer.

B. It can reduce aggregate safety stock when demand is not perfectly correlated.

C. It removes the need for transport planning.

D. It guarantees immunity from disruption.

Correct Answer: B. It can reduce aggregate safety stock when demand is not perfectly correlated.

Question 6

Which situation most strongly supports dual sourcing?

A. The item is easily available from many interchangeable suppliers.

B. The item is critical, difficult to substitute, and disruption consequences are high.

C. The organisation has no supplier qualification process.

D. Both suppliers depend on the same single sub-tier source.

Correct Answer: B. The item is critical, difficult to substitute, and disruption consequences are high.

Question 7

What is the main limitation of a weighted supplier-scoring model?

A. It cannot include non-price criteria.

B. Its result can be influenced by subjective weights and unreliable evidence.

C. It always produces multiple correct suppliers.

D. It cannot compare supplier capabilities.

Correct Answer: B. Its result can be influenced by subjective weights and unreliable evidence.

Question 8

Which contract mechanism is generally most suitable for sharing the effect of a volatile input-price index?

A. An index-linked price-adjustment clause

B. A contract with no review provisions

C. An unconditional fixed price regardless of circumstances

D. A verbal agreement without documentation

Correct Answer: A. An index-linked price-adjustment clause

Question 9

In global sourcing, an Incoterm primarily clarifies:

A. The supplier’s product innovation strategy

B. All aspects of ownership and product quality

C. Selected responsibilities, costs, and transfer of transport risk

D. The buyer’s internal inventory policy

Correct Answer: C. Selected responsibilities, costs, and transfer of transport risk

Question 10

Why should a network model be tested under multiple scenarios?

A. Because strategic decisions are made under uncertainty and the lowest base-case cost may be fragile.

B. Because scenario analysis removes the need for accurate data.

C. Because all scenarios will produce identical recommendations.

D. Because qualitative judgement is never needed after modelling.

Correct Answer: A. Because strategic decisions are made under uncertainty and the lowest base-case cost may be fragile.