Mexico-China Dual Sourcing Game Harvard Case Solution & Analysis

Q1.   How will you prepare yourself to start selling? (You have four periods to prime the pipeline before sales start)

The management of the company is going to introduce a new product to the market. Currently the demand for this new product is unknown. However, the management of the company has estimated that the demand pattern of this new product will be almost same to the previous products that the company has introduced. The historical demand data has been provided in the ‘Historical Order Data Sheet’. The average of all of these demands for the 44 periods has been calculated which is used here as the demand for the new product over the 44 periods. It is stated that the sales start in period 5, therefore, the order for the China’s supplies is placed in period 4 because the lead time of its supply is 4 periods. While, there would be no order of supplies for the Mexican supplies in the first four periods and its lead time is 1 period. Apart from this the management might have to bear initial cost burden of product promotion and the research and development activities to develop the product. This might lead to losses in the initial periods, but management will have to bear them. The bank account value would be negative in these periods. The initial 4 periods would be used to prime the pipeline and meet the demand of the customer beginning in the fifth period.

Q2.    Will you source from both plants?  Why and if so, how much and when?

It is now common in most of the businesses that the businesses can source goods from multiple suppliers. Typically, the businesses face the situation in which they have to choose from multiple suppliers based on the lowest cost possible and also lower lead times. However, the issue is that, the suppliers with the lowest cost have higher lead times and the suppliers with the highest cost have lower lead times. This problem is being faced by many companies. Therefore, the management of this company has developed a simulation game which is shown in ‘Simulate and Plan’ sheet. Using this game (Simulation model), the objective of the management is to maximize the bank account value. Those points at which the total bank account value increases over the product life cycle and is maximum at the end of the product life cycle (in this case period 44). After performing the simulation on this sheet, the results show that 697 orders suppliers should be placed Mexico and the remaining 1016 orders should be placed from China. This would minimize the total cost of sourcing. The separate allocation of the sourcing requirements is also stated in the excel sheet for each of the periods. This is the perfect pattern of the orders for the plants in both countries based on their respective lead times and costs per unit. Therefore, the management should place the orders for this product in this pattern; it would maximize the ending bank account value which would be around $ 2895624.

Q3. What is your strategic allocation? Specifically, when the orders D(t) for period t are revealed, how will you react and prepare for next period: what order will you place to Mexico and what order to China?

The strategic allocation for sourcing the product units from Mexico and China is that, 697 orders would be placed in Mexico and 1016 orders would be placed in China to fulfill the total demand of the new product of 1713 over the product life cycle. As the lead time for the China plant is 4 periods, therefore, the orders for each period will be placed 4 periods before that period, so that the sourcing needs are fulfilled and the demand for the company’s new product is also met. Special care will have to be given to this thing as the products that are not sold at the required time that demand is lost. This means that only the on-hand inventory is sold because customers want the demands to be fulfilled immediately. On the other hand, the lead time for the Mexican supplies is one period; therefore, the orders here would be placed one period before the required demand period. In this way.....................

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