Supply Network Design, Procurement and Logistics

Introduction

Supply network design is the strategic configuration of the organizations, facilities, relationships, information flows and physical movements required to deliver products or services. It extends beyond the traditional idea of a linear supply chain. A firm may source from several suppliers, use contract manufacturers, distribute through wholesalers and digital channels, return products for refurbishment, and depend on logistics providers and regulatory agencies. These interdependent relationships form a network.

The central managerial challenge is coordination. Decisions about supplier location, make-or-buy, contracts, inventory, transportation and distribution influence one another. A low-cost supplier may create long lead times and high disruption exposure. Centralized inventory may reduce duplication but increase delivery distance. Global sourcing may provide scale and capability while introducing currency, geopolitical, environmental and compliance risks.

This chapter develops an integrated approach to supply network design, procurement and logistics. It considers transaction-cost economics, resource dependence, total-cost analysis, supplier relationship management, contracts, the bullwhip effect, collaboration, traceability and global-network trade-offs.

Learning Objectives

By the end of this chapter, the reader should be able to:

1. Explain the strategic logic of supply network design and distinguish supply-chain flows.
2. Evaluate sourcing, supplier relationship and make-or-buy decisions using total-cost and capability perspectives.
3. Compare procurement contracts and identify incentive and risk-allocation consequences.
4. Design distribution and transportation arrangements using service, cost, resilience and sustainability criteria.
5. Diagnose the bullwhip effect and recommend collaborative countermeasures.
6. Apply traceability, digital technologies and governance principles to supply networks.
7. Evaluate global network trade-offs and formulate a coordinated network strategy.

1. The Supply Network as a Strategic System

A supply network contains upstream suppliers, focal firms, logistics providers, distributors, customers, service providers, regulators and recovery partners. It has four connected flows:

• Material flow: movement of raw materials, components, finished goods and returns.
• Information flow: forecasts, orders, inventory records, capacity data, shipment status and quality information.
• Financial flow: prices, invoices, credit, duties, insurance, working capital and payment terms.
• Reverse flow: returns, repairs, recycling, recalls and disposal.

Performance should not be judged only by purchasing price. A useful total landed cost expression is:

where TLC is total landed cost per unit; P is supplier price; F is freight; D is duties and taxes; I is inventory carrying cost; Q is expected quality-related cost; C is compliance and transaction cost; R is expected disruption or recovery cost; and E is relevant environmental cost. The expression is a managerial costing framework rather than a universally fixed accounting identity. Costs must be measured over the same unit, time horizon and product specification.

Strategic design therefore balances five outcomes:

1. Efficiency: low cost and high asset utilization.
2. Responsiveness: rapid and reliable service.
3. Resilience: capacity to absorb and recover from disruption.
4. Sustainability: acceptable environmental and social impact.
5. Strategic fit: alignment with product characteristics and competitive priorities.

Functional optimization can damage total performance. For example, procurement may minimize unit price, manufacturing may maximize batch size, and logistics may consolidate shipments. The resulting system may have excess inventory, poor availability and long response times. Network decisions must be evaluated end-to-end.

2. Network Design Decisions

Network design operates at several levels. Strategic decisions include facility location, supplier geography, production footprint, distribution-channel structure and vertical integration. Tactical decisions include allocation of demand to facilities, transportation modes, inventory positioning and supplier capacity reservations. Operational decisions include order release, routing, expediting and shipment scheduling.

2.1 Centralization and decentralization

Centralized distribution pools inventory and can exploit scale economies. It is often appropriate when demand is uncertain, products are expensive, and customers tolerate longer delivery times. Decentralization places inventory nearer to customers and can improve responsiveness, but it duplicates stock and facilities.

The square-root principle provides a useful approximation for cycle-stock effects when identical facilities serve independent demand and replenishment conditions remain comparable:

Here I₁ and I₂ are aggregate inventory levels under n₁ and n₂ facilities. The approximation assumes comparable service policies, demand pooling conditions and replenishment systems. It does not predict total inventory when safety stock, lead times, transportation economies or facility constraints change substantially.

Centralization improves risk pooling because independent demand variability partially offsets across locations. However, correlated demand, regional disruption, customs barriers and final-mile costs may reverse the advantage.

2.2 Postponement and decoupling

Postponement delays final configuration, packaging or localization until demand is better known. A firm may manufacture a common platform centrally and customize it near the market. This reduces finished-goods variety and forecast error, but requires modular product design, flexible processes and reliable information.

The decoupling point separates forecast-driven activity from order-driven activity. Positioning it upstream supports variety and responsiveness but may increase finished-goods inventory. Positioning it downstream can reduce inventory but demands faster production and logistics.

2.3 Facility and transportation choices

Facility decisions should assess demand density, labor, utilities, supplier proximity, taxes, infrastructure, risk, regulatory conditions, carbon impact and access to skilled capabilities. Transportation mode selection involves a service-cost trade-off:

A sound design avoids treating transportation cost independently from inventory and service. Faster transport may reduce pipeline inventory and stockout risk; slower transport may be economical only if demand is predictable and inventory is properly positioned.

3. Sourcing and Procurement Strategy

Procurement is the managed process of identifying needs, selecting suppliers, contracting, ordering, receiving and evaluating supply. Strategic procurement begins with category analysis rather than isolated purchase orders.

3.1 Spend and supply-market analysis

A category strategy examines expenditure, demand characteristics, supplier concentration, switching costs, technology, capacity, intellectual property, regulatory requirements and disruption exposure. A commonly used portfolio framework classifies purchases by supply risk and business impact:

• Routine items: low impact and low risk; automate and standardize.
• Leverage items: high impact and low risk; use competition and volume aggregation.
• Bottleneck items: low impact but high risk; secure availability and alternatives.
• Strategic items: high impact and high risk; develop relationships, joint planning and executive governance.

This portfolio is a diagnostic device, not a substitute for detailed analysis. Risk can change rapidly because of geopolitical events, supplier financial distress or technological transitions.

3.2 Single, dual and multiple sourcing

Single sourcing can provide scale, technical integration and lower coordination cost. It also increases dependency and may create a single point of failure. Dual sourcing provides redundancy and benchmarking but may reduce volume discounts and complicate quality control. Multiple sourcing can support competition and resilience, though excessive fragmentation increases transaction and qualification costs.

A practical policy is to match sourcing structure to the consequence of failure. Critical components may require qualified alternatives, reserved capacity, strategic inventory or geographic diversification. Resilience is not achieved merely by adding suppliers; alternatives must have usable capacity, compatible specifications and credible activation plans.

3.3 Supplier selection

Supplier selection should combine quantitative and qualitative criteria. A weighted-scoring model can be expressed as:

where S_j is the score of supplier j, w_i is the weight of criterion i, and r_ij is supplier j’s rating on that criterion. Weights should sum to 1 when ratings are normalized. The method is transparent but sensitive to subjective weights and rating scales; it should be supplemented by scenario, financial and capacity analysis.

Important criteria include total cost, quality capability, delivery reliability, engineering support, capacity flexibility, cybersecurity, ethical labor practices, emissions, financial health and continuity planning. Site visits, audits, sample production and reference checks can validate documentary claims.

4. Supplier Relationships and Contracts

Supplier relationship management ranges from transactional buying to strategic partnership. The appropriate relationship depends on asset specificity, uncertainty, frequency, innovation requirements and power balance.

Transaction-cost economics predicts that firms are more likely to internalize activities when transactions involve high asset specificity, uncertainty and repeated coordination problems. Resource-based reasoning emphasizes whether a supplier possesses valuable, rare, difficult-to-imitate capabilities. Relational governance emphasizes trust, routines, joint problem solving and mutual adaptation.

No single theory is sufficient. Long-term contracts may create stability but can also reduce competitive pressure. Partnerships may support innovation but require information sharing and governance. Arm’s-length competition may reduce price but be unsuitable for complex co-development.

4.1 Contract forms

Contracts allocate price, volume, quality, lead-time, intellectual-property, liability and disruption risks. Common forms include:

• Fixed price: supplier bears much cost risk; effective when specifications and costs are stable.
• Cost-plus: buyer bears more cost risk; useful for uncertain development work, but requires cost transparency and controls.
• Time-and-materials: pays labor and materials; useful where scope is evolving, but may weaken cost discipline.
• Quantity-flexibility contract: allows volume adjustment within limits; shares forecast risk.
• Capacity reservation contract: buyer pays for access to capacity; useful where shortages are costly.
• Gain-sharing contract: parties share verified savings or performance improvements.
• Index-linked contract: price adjusts with a defined input index, reducing disputes caused by volatile commodities.

Contracts should specify service-level measures, measurement methods, remedies, escalation procedures, audit rights, change control, data ownership, cybersecurity, continuity obligations, termination and transition assistance. Poorly designed penalties can encourage undesirable behavior, such as shipping incomplete orders merely to meet an on-time metric.

5. Make-or-Buy and Outsourcing Decisions

Make-or-buy analysis compares the relevant cost and strategic consequences of internal production with external supply. For a stable volume, the break-even volume between internal and external alternatives is:

where F_m and v_m are internal fixed and variable costs, F_b and v_b are supplier-related fixed and per-unit costs, and Q* is the volume at which relevant costs are equal. The denominator must be positive for the stated interpretation. The formula assumes linear costs, constant unit costs, known capacity and comparable quality and service. It excludes strategic factors unless they are converted into relevant costs.

Illustrative example. Internal production has fixed cost of $240,000 and variable cost of $18 per unit. A supplier requires an annual coordination and tooling cost of $60,000 and charges $24 per unit. Thus:

Q* = (60,000 − 240,000)/(18 − 24) = 30,000 units.

Below 30,000 units, buying costs less under these assumptions; above 30,000 units, making costs less. The decision must then consider capacity, investment, supplier risk, learning, intellectual property, labor relations, tax, quality and strategic dependence.

Outsourcing can improve flexibility and access to specialist capability. It may also create hidden coordination costs, loss of process knowledge, data exposure and reduced recovery options. A firm should distinguish outsourcing a non-core activity from outsourcing a capability that determines competitive advantage.

6. Logistics, Inventory and Distribution Coordination

Logistics coordinates transportation, warehousing, handling, inventory, packaging and order fulfillment. Distribution design must specify the customer promise: availability, order cycle time, delivery window, damage tolerance, returns process and visibility.

Inventory exists to decouple operations, achieve economies of scale, protect against uncertainty and support customer service. Relevant categories include cycle stock, safety stock, pipeline inventory, anticipation stock and decoupling inventory. Inventory decisions should use the marginal cost of additional availability rather than an unexamined target.

For independent demand with approximately normal demand during lead time, a basic reorder point is:

where μ_L is mean demand during lead time, σ_L is its standard deviation, and z is the standard-normal safety factor associated with the desired cycle-service probability. This formulation assumes a continuous-review policy, stable distributions and known lead-time demand parameters. If demand and lead time are independent, with per-period demand standard deviation σ_d, mean demand μ_d, lead time L periods, and lead-time standard deviation σ_L, then:

This expression assumes independence and uses consistent time units. If demand and lead time are correlated, a covariance term is required; if demand is intermittent or highly non-normal, empirical or simulation-based methods may be preferable.

Distribution strategies include direct shipment, cross-docking, hub-and-spoke networks, regional distribution centers, drop-shipping and omnichannel fulfillment. The choice depends on product velocity, order size, customer density, handling requirements and return flows.

7. The Bullwhip Effect and Supply-Chain Collaboration

The bullwhip effect is the amplification of order and production variability as one moves upstream from the customer. It can arise even when final demand is relatively stable. Major causes include demand-signal processing, order batching, temporary price promotions, rationing and shortage gaming, long lead times and inconsistent replenishment rules.

Consequences include excess capacity, inventory oscillation, poor utilization, expediting, obsolescence and strained supplier relationships. Local optimization is often responsible: each stage reacts to incoming orders rather than the underlying consumption pattern.

Countermeasures include:

• sharing point-of-sale and inventory data;
• reducing order and shipment batch sizes;
• stabilizing prices and limiting forward-buying promotions;
• shortening and making lead times reliable;
• using vendor-managed inventory or continuous replenishment;
• allocating scarce supply transparently;
• coordinating forecasts, promotions and capacity plans;
• using common performance measures across firms.

Collaboration must be governed. Shared data require definitions, ownership, access controls and cybersecurity. Collaborative planning should specify who decides, how disagreements are escalated and how benefits are measured. Trust is strengthened by credible commitments, not by information sharing alone.

8. Traceability, Digitalization and AI

Traceability is the ability to follow the history, location and application of a product, batch, component or transaction. It supports recalls, regulatory compliance, quality diagnosis, ethical sourcing and sustainability reporting. Effective traceability requires unique identifiers, event records, standardized master data, chain-of-custody controls and clear retention policies.

Technologies may include barcode and RFID systems, electronic data interchange, transport-management systems, warehouse-management systems, cloud platforms, internet-of-things sensors and distributed ledgers. Technology does not guarantee trustworthy information: inaccurate source data remain inaccurate after being placed on a sophisticated platform.

AI and advanced analytics can assist demand sensing, ETA prediction, supplier-risk monitoring, anomaly detection, inventory positioning and route planning. Human governance remains essential because models may inherit biased data, generate false alarms, expose commercially sensitive information or fail under structural change. A responsible deployment includes validation, explainability appropriate to the decision, access controls, monitoring, fallback procedures and accountability.

9. Global Supply Networks: Benefits and Trade-offs

Global networks can provide access to lower-cost inputs, specialized capabilities, scale economies, new markets and geographic diversification. They also introduce longer lead times, customs complexity, currency exposure, political risk, sanctions, language differences, intellectual-property threats, labor concerns and carbon emissions.

The apparent unit-cost advantage of global sourcing should be tested against total risk-adjusted cost. Relevant considerations include:

• probability and duration of disruption;
• time to qualify an alternative;
• inventory required to protect service;
• exchange-rate and commodity-price exposure;
• duty, tax and trade-policy changes;
• social and environmental compliance;
• transport emissions and congestion;
• data, cyber and intellectual-property risk.

Reshoring, nearshoring and regionalization may improve responsiveness and control but can increase direct cost or reduce access to specialized scale. The appropriate response is often a segmented network: regional supply for time-sensitive or critical items and global supply for stable, standardized products.

10. Governance, Ethics and Sustainability

Supply networks distribute responsibility across organizational boundaries, but outsourcing does not eliminate accountability. Governance should address forced labor, discrimination, unsafe work, bribery, conflicts of interest, environmental damage, data misuse, product safety and misleading sustainability claims.

Procurement professionals should use transparent specifications, fair bidding, conflict declarations and documented evaluation criteria. Supplier audits should be risk-based and followed by corrective action; audit scores alone do not prove ethical performance. Contracts should permit worker-protection requirements, reporting, investigation and remediation.

Sustainability analysis should consider the product life cycle, not only transport distance. A closer supplier may use more carbon-intensive production; a distant supplier may use efficient ocean transport. Environmental decisions should therefore use reliable boundaries and comparable data. Social and economic effects on supplier communities also matter.

11. Applied Case: Northstar Medical Devices

Background

Northstar Medical Devices, an illustrative case, produces diagnostic analyzers for hospitals in three regions. Its core sensor module is purchased from one overseas supplier under a three-month lead-time contract. Final configuration occurs at two regional facilities. Hospital demand is growing, but forecasts are inaccurate and product variants are proliferating.

Problem

Northstar experiences sensor shortages, emergency airfreight and occasional line stoppages. Procurement reports a low purchase price, while operations reports high total cost. The supplier is reliable under normal conditions but is located in a region exposed to port closures. Hospital customers require batch-level traceability, yet component data are recorded manually.

Analysis

The single-source arrangement creates concentration risk. Long lead time and forecast updates encourage Northstar to place large orders, contributing to demand amplification. Variant proliferation increases finished-goods inventory. Manual records slow recalls and make supplier quality analysis difficult. The purchase-price measure excludes airfreight, disruption, inventory and shortage costs.

Approach

Northstar adopts a segmented design:

1. It qualifies a second supplier in a neighboring region for 30% of normal demand and 70% of emergency capacity.
2. It uses a capacity-reservation clause and a transparent index adjustment for major material costs.
3. It standardizes the sensor interface and postpones final software and packaging configuration.
4. It shares weekly consumption and inventory data rather than relying solely on monthly orders.
5. It implements serialized component scanning at receipt and assembly.
6. It evaluates suppliers using total landed cost, quality, continuity, emissions and compliance.
7. It establishes a cross-functional control tower for exceptions, with human approval for major allocation decisions.

Outcome

The redesigned network reduces dependence on one supplier, improves recall readiness and reduces emergency transport. It does not minimize every individual cost: qualification, systems integration and reserved capacity require investment. However, total risk-adjusted performance improves because Northstar gains recovery options and better demand visibility.

Learning points

The case demonstrates that resilience must be designed before disruption, not purchased during it. It also shows why postponement, collaboration, traceability and contracts should be considered together. A second supplier without compatible specifications or validated capacity would provide only apparent resilience.

12. Implementation Framework for Managers

A practical implementation sequence is:

1. Define the customer promise: service levels, lead time, variety, availability and sustainability expectations.
2. Map the network: suppliers, tiers, facilities, flows, dependencies and critical nodes.
3. Segment products and suppliers: assess value, risk, complexity and substitutability.
4. Model scenarios: demand growth, disruption, transport changes, currency, regulation and capacity loss.
5. Evaluate total cost and risk: include inventory, quality, compliance, carbon and recovery consequences.
6. Select governance mechanisms: competition, partnership, contract design, data sharing and escalation.
7. Pilot and validate: test qualification, traceability, replenishment and contingency procedures.
8. Measure and improve: use service, cost, resilience, sustainability and relationship indicators.

Useful measures include perfect-order rate, supplier on-time delivery, forecast bias, order variability, inventory turns, cash-to-cash time, expedite spend, recovery time, defect rates, emissions per delivered unit and corrective-action closure. Measures should be balanced: reducing inventory while increasing stockouts is not an improvement.

Challenges and Limitations

Network design models simplify reality. Data may be incomplete, costs may be allocated inconsistently, and disruption probabilities may be unknowable. Optimization may produce a mathematically efficient design that is politically unacceptable or operationally fragile. Weighted scores can conceal trade-offs, while historical data may not represent future structural change.

Relationships also create tensions. Buyers seek flexibility and low prices; suppliers seek predictable volume and margin. Transparency can improve coordination but may expose sensitive information. Resilience investments may reduce short-term financial performance. Managers must make these trade-offs explicit and use scenario analysis, sensitivity testing and executive judgment.

Chapter Summary

Supply network design coordinates sourcing, production, distribution, transportation, information, finance and reverse flows. Strategic performance depends on total cost, service, resilience, sustainability and capability fit rather than purchase price alone. Centralization, postponement and facility location shape inventory and responsiveness. Procurement strategy requires segmentation, supplier-market analysis and appropriate sourcing redundancy. Supplier relationships and contracts should allocate risk, encourage performance and protect continuity.

Make-or-buy decisions combine relevant cost analysis with capability, capacity and strategic dependence. Logistics decisions link transportation, inventory and distribution. The bullwhip effect results from local reactions, batching, promotions and poor visibility; collaboration and synchronized replenishment reduce it. Traceability supports quality, compliance and recalls, while digital and AI tools require strong data and governance. Global networks create scale and specialization benefits but expose firms to disruption, regulation, social and environmental risks. Effective managers design segmented, transparent and adaptable networks and continuously test their assumptions.

Key Terms

Supply network: Interconnected organizations and facilities involved in creating and delivering value.

Total landed cost: Purchase and associated costs required to obtain and use a supply item.

Risk pooling: Reduction in aggregate uncertainty achieved by combining demand or supply sources.

Postponement: Delaying final configuration until demand information improves.

Decoupling point: Boundary between forecast-driven and order-driven processes.

Strategic sourcing: Long-term management of supply categories, markets and relationships.

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

Transaction-cost economics: Perspective explaining organizational boundaries through coordination and contracting costs.

Asset specificity: Degree to which an investment has limited value outside a particular transaction.

Make-or-buy decision: Choice between internal production and external procurement.

Safety stock: Inventory held to protect against demand or supply uncertainty.

Reorder point: Inventory position at which replenishment is initiated.

Bullwhip effect: Upstream amplification of demand or order variability.

Vendor-managed inventory: Arrangement in which the supplier manages replenishment using agreed information.

Traceability: Ability to track an item’s history, location and application.

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

Postponement: Delayed product differentiation or localization.

Total cost of ownership: Comprehensive cost of acquiring, operating and disposing of an item or service.

Control tower: Coordinated visibility and exception-management capability across a network.

Review Questions

5 Short Answer Questions

1. What are the four principal flows in a supply network?
2. Why can centralized inventory reduce aggregate safety stock?
3. State two advantages and two risks of single sourcing.
4. What causes the bullwhip effect?
5. Why is traceability important in medical or food supply networks?

5 Long Answer Questions

1. Explain how facility location, transportation mode and inventory positioning should be evaluated together.
2. Compare transactional buying, preferred-supplier relationships and strategic partnerships using relevant theoretical perspectives.
3. Discuss how contract design can allocate forecast, capacity and price risk between buyers and suppliers.
4. Evaluate the benefits and limitations of global sourcing, nearshoring and regional supply networks.
5. Develop a governance framework for ethical, sustainable and digitally enabled procurement.

3 Analytical / Application Questions

1. A firm has internal fixed cost of $300,000 and variable cost of $20 per unit. An external supplier requires $60,000 in annual tooling and coordination cost and charges $26 per unit. Calculate the break-even volume and explain which option is preferred below and above that volume, subject to the model’s assumptions.
2. A retailer observes stable consumer sales but increasingly variable supplier orders. Diagnose the likely causes and design a collaborative intervention involving data, replenishment, pricing and performance measures.
3. Design a resilient network for a critical component with one low-cost global supplier and one higher-cost regional supplier. Specify sourcing allocation, contract provisions, inventory policy, traceability requirements and decision criteria.

Multiple Choice Questions with Answers

Question 1

Which statement best describes total landed cost?

A. The supplier’s quoted unit price only

B. Purchase price plus relevant acquisition, logistics, inventory, quality, compliance and risk costs

C. Transportation cost divided by annual demand

D. The accounting value of finished-goods inventory

Correct Answer: B. Purchase price plus relevant acquisition, logistics, inventory, quality, compliance and risk costs

Question 2

Postponement primarily seeks to:

A. Increase finished-product variety before demand is known

B. Delay final configuration until better demand information is available

C. Eliminate the need for supplier collaboration

D. Move all inventory to the customer location

Correct Answer: B. Delay final configuration until better demand information is available

Question 3

A major risk of single sourcing is:

A. Guaranteed excess competition

B. Loss of all volume economies

C. Dependence on one source and greater exposure to its failure

D. Automatic improvement in resilience

Correct Answer: C. Dependence on one source and greater exposure to its failure

Question 4

In the break-even formula Q* = (F_b − F_m)/(v_m − v_b), Q* represents:

A. The supplier’s safety stock

B. The volume at which relevant make and buy costs are equal

C. The maximum transportation quantity

D. The annual forecast error

Correct Answer: B. The volume at which relevant make and buy costs are equal

Question 5

Which practice is most likely to reduce the bullwhip effect?

A. Increasing order batches

B. Using frequent price promotions

C. Sharing point-of-sale and inventory data across partners

D. Withholding capacity information

Correct Answer: C. Sharing point-of-sale and inventory data across partners

Question 6

The reorder-point expression ROP = μ_L + zσ_L assumes that:

A. Demand during lead time is represented by a mean and safety variation measure

B. All demand is deterministic

C. Transportation cost is zero

D. Supplier quality is irrelevant

Correct Answer: A. Demand during lead time is represented by a mean and safety variation measure

Question 7

Which contract is especially useful when a buyer needs access to scarce supplier capacity?

A. Capacity reservation contract

B. Pure spot purchase with no commitment

C. Unconditional donation agreement

D. Fixed inventory disposal contract

Correct Answer: A. Capacity reservation contract

Question 8

Traceability is best defined as the ability to:

A. Predict every future customer order

B. Track a product’s history, location and application

C. Eliminate all supplier audits

D. Guarantee zero product defects

Correct Answer: B. Track a product’s history, location and application

Question 9

A key limitation of a weighted supplier-scoring model is that it:

A. Cannot include more than one supplier

B. Is sensitive to subjective weights and rating scales

C. Always ignores quality

D. Requires no managerial judgment

Correct Answer: B. Is sensitive to subjective weights and rating scales

Question 10

Which statement about global sourcing is most accurate?

A. Lower purchase price always means lower total cost

B. Global sourcing eliminates geopolitical risk through diversification

C. Global sourcing may provide scale and specialization while increasing lead-time, regulatory and disruption exposure

D. Regional sourcing is always cheaper than global sourcing

Correct Answer: C. Global sourcing may provide scale and specialization while increasing lead-time, regulatory and disruption exposure