Centralization vs. Decentralization: Selection of Downstream Supply Chain Strategy : A single case study on the positioning of purchasing within the Supply Chain of a multinational company

University essay from KTH/Skolan för industriell teknik och management (ITM)

Abstract: As Supply Chain Management has continuously evolved, it has during recent times been exposed to the opportunities and threats that follow globalization. Firms have the possibility of getting their products/services to customers worldwide by outsourcing processes. This possibility has even turned mandatory for numerous firms in order to be competitive. However, such decisions can expose the Supply Chain to various risks. Because of lack of data and Supply Chain Structures, decision-makers need to distinguish advantages vs. disadvantages between centralized, decentralized or even outsourced structures. The purpose of this study has been, based on gathered data from a case company, to determine what Supply Chain structure to opt for when it comes to purchasing. This master thesis has performed a literature review on the science of Data Mining to enrich the quality of a quantitative part based on databases of the case company. The study also reviews Supply Chain Management strategies and how to select an appropriate distribution channel design - allowing for a framework about selecting an appropriate network design and another framework summarizing current literature’s contribution on the question of centralization versus decentralization based on Finance, Performance or Information. These three pillars are the aspects used as reference of analysis in various literature and could therefore be compared with empirics. The selection framework was filled in by key individuals at the case company and was associated with qualitative contributions from interviews about strengths and weaknesses of three scenarios involving centralization, decentralization or outsourcing. With obtained data, it was possible to identify all strengths and weaknesses of each scenario and discuss differences to select the best possible option. The findings were summarized into a framework where one can clearly see pros and cons of each scenario, thus providing a concise summary of implications following centralization, decentralization and outsourcing respectively. The results of the distribution network pointed towards a decentralization of the purchasing function as a more cost-efficient strategy, but these results must be questioned because of the current setting-bias with the spreading of the COVID-19 virus and its economic consequences. However, when all arguments were grouped into the final summarizing figure, it was concluded that the outsourcing strategy is the most advantageous. This thesis has thus permitted the extension of a framework that identifies the best distribution network design and summarized the implications of centralizing, decentralizing or outsourcing purchasing.

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