Global supply chain design: understanding costs through dynamic modelling

We study the economics of the outsourcing decision from a supply chain dynamics perspective. Production can be either in the UK, where products are delivered on trucks to a UK warehouse, or in China where product is shipped via a container liner to a UK warehouse. We show that the traditional “landed cost” approach of purchase price plus transport costs overestimates the benefit from outsourcing products to China. However, the dynamic costs associated with the pipeline inventory, the UK inventory & the UK warehousing capacity costs associated with unloading the containers is not large enough to change the outsourcing decision