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Cost Reduction through Strategic Sourcing of Matured Products Designed for a Subsea Environment
KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.), Sustainability and Industrial Dynamics.
2014 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

The overall objective of this thesis is to analyse the economies and diseconomies of moving the production of standardized parts, i.e. parts which are used in matured products, to low cost countries whilst looking at improvements that could be done to the current supply chain strategy.

The research conducted in this report has shown that Company A has a potential to cut the cost for product X by outsourcing Component 1 to a low cost country in Eastern Europe where the labour costs are low enough that the main cost driver for the component becomes the raw material as opposed to labour cost. There is also a possibility that a larger storage could be used to  reduce both cost and problems stemming from the volatility of the demand which was experienced by the Buyer of Company A. The argument for keeping a larger amount of stock would be the results from the interviews held for the Smith matrix analysis, where all of the interviewees agreed that the component rarely ever had any changes made to its specification and no changes are believed to be done to the technology. If the yearly demand is set, Company A could therefore plan a purchase of larger batches which would lower the cost.

The risks associated with outsourcing can according to the literature be lowered through the use of a multi sourcing strategy that would secure the delivery in the event that the non-local company would fail to deliver an order. The downside to this tactic is that the batch sizes ordered from the internationally located supplier would be smaller and thus increasing the cost per part. The balance of orders to the two suppliers must therefore be considered and planned in great detail to keep both price and risk at an appropriate level.

Place, publisher, year, edition, pages
2014. , 77 p.
Keyword [en]
Strategic Sourcing, Outsourcing, Near-sourcing, Cost reduction
National Category
Economics and Business
URN: urn:nbn:se:kth:diva-160922OAI: diva2:792589
Available from: 2015-03-12 Created: 2015-03-04 Last updated: 2015-03-12Bibliographically approved

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