The economic and environmental sustainability of dual sourcing

by Heidrun Rosic

Institution: Vienna University of Economics and Business
Year: 2011
Keywords: RVK QP 240, QP 530; supply chain management / dual sourcing / Kohlendioxidemission / umweltbezogenes Management
Record ID: 1031750
Full text PDF: http://epub.wu.ac.at/3079/1/Dissertation_Rosic_FINAL.pdf


A supply chain comprises all processes, such as production, warehousing, sourcing and transport, which are necessary to deliver the desired products to the customer. In this respect, supply chain management deals with the design of these processes to fulfil customer requirements at low costs. Traditionally, the decisions are based on the economic performance of a supply chain, which can be measured with financial criteria, such as total landed costs and profit, or non-financial criteria, like customer service. Recently, other criteria, such as quality, flexibility and the impact of supply chain activities on the environment, have become important as well. However, prevalent supply chain strategies, such as offshoring or outsourcing and centralization of locations, often lead to an improvement of economic criteria while negatively affecting the environment due to increased transport activity and the related carbon emissions. Now, stricter regulations and increasing customer awareness with respect to the environment encourage companies to reconsider their strategies and to search for supply chain strategies which are cost-efficient, provide the required customer service and are at the same time environmentally friendly. This work deals with the issue of supply chains and their impact on the environment. In particular, the relation between different sourcing strategies and transport carbon emissions is analysed. We compare single offshore sourcing with dual sourcing relying on an offshore and an onshore supplier. For this purpose, we use a single-period inventory model, also known as newsvendor or newsboy model. We present the classical newsvendor model, i.e. the single offshore sourcing strategy, as well as the basic dual sourcing model. We evaluate the performance of the supply chain with the different sourcing strategies based on expected profit, customer service and transport carbon emissions. In addition to that, we integrate environmental regulations with respect to transport carbon emissions (emission limit, emission taxes and emission trading) into the basic dual sourcing model. We analyse how the decision of the company is influenced by these regulations. Furthermore, we have a closer look at how the regulations influence the economic and environmental performance of the supply chain. We provide analytical as well as numerical results and derive implications for policy-making and management. (author's abstract)