Unit 4: Global sourcing and supply chain strategy
Operations Strategy notes · PTU syllabus (MBA 951-18)
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Unit summary
Supply chains now span the globe, and operations must also be innovative and sustainable. This unit covers global sourcing trends, outsourcing and offshoring strategy, global supply chain strategy, materials requirements planning, innovation management, and environmental and social sustainability strategy.
After this unit you can
- Explain global sourcing trends and outsourcing and offshoring strategy
- Explain global supply chain strategy
- Apply materials requirements planning
- Explain innovation management and sustainability strategy in operations
PTU syllabus topics
- Global sourcing trends
- outsourcing and offshoring strategy
- global supply chain strategy
- materials requirements planning
- innovation management
- environment and social sustainability strategy
- 1Master production schedule
- 2Bill of materials
- 3Inventory records
- 4MRP calculations
Net requirements
- 5Planned orders
What to buy or make, and when
Topic 1
Global sourcing trends
- Drivers: lower costs, access to capabilities and materials, proximity to markets, trade agreements.
- Trends: "China plus one" diversification, nearshoring and friend-shoring, India's PLI schemes attracting electronics and pharma manufacturing, digital procurement platforms, supplier ESG audits, resilience over pure cost after COVID-19 and shipping disruptions.
Topic 2
Outsourcing and offshoring strategy
Meaning
Contracting an activity to another firm
Moving an activity to another country
Ownership
External provider
May be own subsidiary (captive) or outsourced
Example
Payroll to an HR services firm
A US bank's back office in Bengaluru
- Reshoring: bringing activities back home for control, speed or policy reasons.
- Risks: hidden costs, quality and IP risks, communication and time zones, geopolitical and currency risk; managed through careful vendor selection, contracts, SLAs and governance.
Topic 3
Global supply chain strategy
- Fisher's model (1997): functional products (stable demand) need efficient supply chains; innovative products (unpredictable demand) need responsive supply chains.
Network design
Location of plants, warehouses, hubs
Sourcing
Single vs multiple, global vs local
Logistics
Modes, ports, 3PL and 4PL partners
Risk management
Dual sourcing, buffer stocks, visibility tools
Trade compliance
Customs, tariffs, free trade agreements
- Bullwhip effect: small changes in consumer demand cause growing swings upstream — reduced by information sharing, VMI, smaller orders and stable pricing.
Topic 4
Materials requirements planning
MRP calculates the quantity and timing of components needed to meet the master production schedule.
- 1Inputs
Master production schedule, bill of materials, inventory records
- 2Explode the BOM
Gross requirements for each component
- 3Net requirements
Gross requirements − on-hand − scheduled receipts
- 4Offset by lead time
Planned order releases
- 5Outputs
Purchase and production orders, reschedule notices
Example
A bicycle needs 2 wheels. To make 100 bicycles in week 6 with 40 wheels in stock and a 2-week lead time, net requirement = 200 − 40 = 160 wheels; release the order in week 4.
- MRP II extends to capacity, finance and marketing; ERP to the whole enterprise.
Topic 5
Innovation management
- Types: product, process, business model and organisational innovation; incremental vs radical; open innovation (external partners, start-ups).
- Managing innovation: innovation strategy and portfolio, stage-gate funnel, cross-functional teams, R&D–operations links, learning from failures, protecting IP.
- Operations' role: design for manufacture, rapid prototyping, pilot plants, scaling up quickly.
Topic 6
Environmental and social sustainability strategy
- Triple bottom line in operations: people, planet and profit.
Green design
Eco-design, recyclable materials, lower energy use
Clean production
Waste reduction, renewable energy, water recycling
Green supply chain
Supplier environmental standards, low-carbon logistics
Circular economy
Reuse, remanufacture, recycle; extended producer responsibility
Social responsibility
Safe working conditions, fair wages, no child labour in supply chains
- Standards and reporting: ISO 14001, ISO 45001, SA8000, BRSR disclosures, carbon footprint and net-zero targets.
Key terms
- Offshoring
- Relocating an activity to another country
- Responsive supply chain
- Chain designed for speed and flexibility
- Bullwhip effect
- Amplification of demand swings upstream
- Bill of materials
- List of components needed for a product
- Circular economy
- System keeping materials in use through reuse and recycling
Quick revision
- Global sourcing drivers and trends (China plus one, PLI, resilience).
- Outsourcing vs offshoring; reshoring; risks and governance.
- Fisher's efficient vs responsive chains; global SC decisions; bullwhip.
- MRP inputs, logic, outputs; MRP II and ERP.
- Innovation management; sustainable operations practices and standards.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.Distinguish outsourcing and offshoring.
- Q2.What is reshoring?
- Q3.State Fisher's matching rule.
- Q4.What is the bullwhip effect?
- Q5.Name the inputs of MRP.
- Q6.What is a circular economy?
Long-answer questions
- Q1.Discuss global sourcing trends and outsourcing and offshoring strategy.
- Q2.Explain global supply chain strategy with Fisher's model.
- Q3.Explain the logic of materials requirements planning with an example.
- Q4.Discuss innovation management and sustainability strategy in operations.
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