Achieving an optimal global versus domestic sourcing balance under demand uncertainty

As manufacturers face demand uncertainty and new retailing practices, such as filling frequent, small replenishment orders, agility has become an important competitive tool. By sourcing globally, manufacturing firms can reduce production costs, but may not be agile enough to meet retailers' needs on a timely basis. To minimize the cost/agility trade‐off, many firms are combining global and domestic sourcing. However, factors to be considered for mixed strategies have not been suggested. Based on Bucklin's concepts of postponement and speculation, this study tried to find the ideal point, “I”, at which the optimal amount of global and domestic sourcing can be formulated considering the total cost and delivery time simultaneously. In mixing domestic and global sourcing to reach the optimum profit, this study provided four conditions under which the larger portion of domestic sourcing can be formulated: greater level of demand uncertainly, information and manufacturing technology, local subcontractor clusters, and long‐term relationship with a subcontractor.