Buyer’s Bankruptcy Risk, Sourcing Strategy, and Firm Value: Evidence from the Supplier Protection Act

What should a distressed buyer’s sourcing strategy be? We find that this depends on the dynamics in a potential in-court bankruptcy. To establish causality, we use a novel sourcing data set in combination with a unique quasi-natural experimental setting provided by a regulatory shock that significantly strengthened the protection granted to suppliers when a distressed buyer files for bankruptcy: the Supplier Protection Act. We find that, following this regulatory change, the number of suppliers for buyers near financial distress (those most affected by the act, the treated group) increased by nearly 35% relative to financially sound firms (the control group). We also find that this shift allowed distressed buyers to obtain more trade credit, expand inventory holdings, and increase performance, leading to an overall increase in firm value of 7.2%. In turn, these effects led to a sizable reduction in the probability of the affected buyers defaulting and filing for bankruptcy. Our results have important implications for corporate executives: right-sizing the supply base can be critical for buyers near financial distress, and implementing policies to engage and protect suppliers can be the way out of distress. This paper was accepted by Vishal Gaur, operations management.

A Fundamental Economic Assessment of Recovering Rare Earth Elements and Critical Minerals from Acid Mine Drainage Using a Network Sourcing Strategy

In recent years, acid mine drainage (AMD) has emerged as a promising unconventional source of rare earth elements (REEs) and other critical minerals (CMs) such as cobalt and manganese. In this regard, AMD provides a natural heap leaching effect that extracts and concentrates REE/CM from the host strata creating a partially enriched feedstock suitable for downstream extraction, separation, and recovery. While several prior studies have described processes and approaches for the valorization of AMD, very few have described the supply chain and infrastructure requirements as well as the associated economic assessment. To that end, this paper provides a fundamental economic assessment of REE/CM recovery from AMD using a network sourcing strategy in addition to a robust, flexible feedstock separations and refining facility. The methodology of this paper follows that of a typical techno-economic analysis with capital and operating costs estimated using AACE Class IV (FEL-2) guidelines. To demonstrate the range of possible outcomes, four pricing scenarios were modeled including contemporary prices (September, 2021) as well as the minimum and maximum prices over the last decade. In addition, five production scenarios were considered reflecting variations in the product suite, ranging from full elemental separation to magnet REE and CM production only (i.e., Pr, Nd, Tb, Dy, Y, Sc, Co, and Mn). The results of this analysis show that, with the exception of the minimum price scenario, all operational configurations have positive economic indicators with rates of return varying from 25% to 32% for the contemporary price scenario. The optimal configuration was determined to be production of Co, Mn, and all REEs except for mischmetal, which is not recovered. Sensitivity analysis and Monte Carlo simulation show that capital cost and HCl consumption are the two major factors influencing rate of return, thus indicating opportunities for future technology development and cost optimization. Implications of the study and a cooperative profit-sharing model for sourcing are also described.

Dynamic sourcing strategies for supply disruptions under consumer stockpiling

This paper considers a make-to-order system where production gets disrupted due to a random supply failure. To avoid potential stock-out risk and responding price increase during disruption, customers might decide to stockpile extra units for future consumption. We investigate the contingent sourcing strategy for the manufacturer to cope with the disruption. To this end, we first discuss the optimal post-disruption stockpiling decision for customers. In view of expected disruption duration, price rise, and inventory holding cost, three types of stockpiling behavior are analytically provided for the customers: non-stockpiling, gradual stockpiling, and instantaneous stockpiling. Next, a model is formulated to optimize the joint decision of contingent sourcing time and quantity, with the objective of maximizing profit expectation. Finally, by conducting numerical analysis, we generate further insights into the role of relative factors and provide specific managerial suggestions on how to adapt dynamic contingent sourcing strategies to alleviate different disruptions, under different market environments and customer behaviors.

The fringe or national brand manufacturer? An analysis of private label sourcing strategy

Purpose Private labels (PLs) have flowed into a wide range of categories and continue to expand especially in the mass channel. This paper aims to investigate the optimal PL sourcing strategy for a retailer and the impact of different sourcing strategies on the interaction between the upstream national brand (NB) manufacturer and the downstream retailer in a dyadic supply chain. Design/methodology/approach The authors develop a game-theoretic model that allows for vertical differentiation, where a retailer may choose between two types of PL sourcing strategies, i.e. fringe and NB manufacturer sourcing (NBMS). Under fringe manufacturer sourcing, the procurement cost is low but the PL recognition is also low. There exists a group of loyal consumers who only choose the NB. Under NBMS, the procurement cost is high but the loyal consumers may switch between two products. The channel members engage in a three-stage sequential game and the authors analyze the subgame perfect equilibrium by comparing the retailer’s best profits in the two subgames, i.e. fringe and NBMS. Findings The model shows that the retailer inclines to source from the NB manufacturer if the size of the loyal consumer group is relatively large, which provides a rationale for the existence of NBMS. It is also shown that the NB quality plays a positive role on NBMS. As the NB quality becomes higher, the retailer is more likely to procure the PL from the NB manufacturer instead of the fringe manufacturer. In addition, both channel members can be better off and more consumer surplus is provided by expanding the market under NBMS. Overall, sourcing from the NB manufacturer may improve channel profit, consumer welfare and social welfare. Originality/value The research contributes to explaining why the practice of sourcing PLs from NB manufacturers is widely adopted by retailers and can help retailers to make appropriate PL sourcing strategies under various circumstances.

Predicting bid protests: What should sourcing teams (not) do?

Purpose The purpose of this study is to better understand the effectiveness of buyers’ defensive measures to thwart bid protests in government procurements. Design/methodology/approach A sample of 240 sourcing professionals concerning government source selections is used to analyze a logistic regression model exploring 6 antecedents of bid protests. Findings This research implicates the importance of oral presentations of offers, the type of value procured (i.e. services), protest experience, the quantity of document revisions, transaction costs and cost reimbursement contracts in receiving a bid protest. Originality/value To the best of the authors’ knowledge, this research is the first to explore sourcing strategy decisions that can contribute to the receipt of a bid protest. It adds clarity to an understudied market of business – the public sector.

Multi-step process for selecting strategic sourcing options when designing supply chains

Purpose: This paper, devoted to the selection of strategic sourcing options as a part of the supply chain design, aims to provide supply chain designers with guidelines for selecting the best strategic sourcing option for each item (i.e., products, modules, parts and services).Design/methodology/approach: The study is based on a review of the literature on sourcing options, buyer-supplier relationships, factors and criteria to select a sourcing strategy as well as the authors experience in this field.Findings: We propose a multi-step process by considering the three dimensions of the strategic sourcing options (who and how many will make the item; in cases of outsourcing, the kind of relationship between buyer and supplier(s); and where the item is to be made) together with the characteristics of the context, demand and product, and the relevant criteria to evaluate them.Originality/value: The main contributions are the review of the factors and criteria for selecting the best strategic sourcing option for each item (i.e., products, modules, parts and services) as well as the guidelines provided for each step of the process.

Offshore vs. domestic sourcing in a retail environment : a hybrid decision model utilizing a total cost of ownership and analytic hierarchy process methodology

In today's fast paced society, consumers expect their demand to be satisfied instantaneously; otherwise, they will go to the competition. Selecting a strategic supplier is an imperative undertaking, especially in a retail environment, to the company's success and profitability. Retailers have been steadily increasing their offshore penetration due to the low cost of goods. Global sourcing has become an important part of a retailer's strategy to achieve a competitive advantage. However, even though low cost is an important element of improving sales margins and profitability, additional criteria must be taken into consideration when determining the optimal sourcing strategy. This project addresses the issue of strategic supplier selection in a retail environment focusing on offshore versus domestic sourcing decisions. This is accomplished by developing a hybrid decision model which utilizes a total cost of ownership (TCO) model incorporated into an analytic hierarchy process (AHP) framework. This model is comprehensive and straightforward to apply in comparison to similar models within the literature. The model is applied to ABC Company, a major Canadian retailer. The analysis carried out in this project indicates that, for ABC Company, a domestic supplier is favorable.

Offshore vs. domestic sourcing in a retail environment : a hybrid decision model utilizing a total cost of ownership and analytic hierarchy process methodology

In today's fast paced society, consumers expect their demand to be satisfied instantaneously; otherwise, they will go to the competition. Selecting a strategic supplier is an imperative undertaking, especially in a retail environment, to the company's success and profitability. Retailers have been steadily increasing their offshore penetration due to the low cost of goods. Global sourcing has become an important part of a retailer's strategy to achieve a competitive advantage. However, even though low cost is an important element of improving sales margins and profitability, additional criteria must be taken into consideration when determining the optimal sourcing strategy. This project addresses the issue of strategic supplier selection in a retail environment focusing on offshore versus domestic sourcing decisions. This is accomplished by developing a hybrid decision model which utilizes a total cost of ownership (TCO) model incorporated into an analytic hierarchy process (AHP) framework. This model is comprehensive and straightforward to apply in comparison to similar models within the literature. The model is applied to ABC Company, a major Canadian retailer. The analysis carried out in this project indicates that, for ABC Company, a domestic supplier is favorable.