MGT 528 – Operations: Economics and Strategy

9. Sourcing Decisions and Contracting

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       Lecture Notes (Overheads Used In Class)

· Lecture 9 – Slides

Reading (Preparation)

· Chopra/Meindl, Supply Chain Management, Ch. 14

Questions (Preparation)

· Put yourself in the shoes of a premium Swiss watchmaker and provide arguments for and against the sourcing of mechanical movements from an outside company (e.g., ETA).

· If the watchmaker decides to source the movements from ETA, what would be the most important points to negotiate in a sourcing contract?

· Why would the maker of the movements not produce its own watches?

Background Reading (for future reference only)

· Cachon, G.P. (2003) “Supply Chain Coordination with Contracts,” in: de Kok, A.G., Graves, S.C. (Eds.) Handbooks in OR & MS, Vol. 11, Elsevier, pp. 229—339.

· Milgrom, P., Roberts, J. (1992) Economics, Organization and Management, Prentice Hall, Ch. 6 (Moral Hazard and Performance Incentives) & Ch. 7 (Risk Sharing and Incentive Contracts).

· Nash, J.F. (1950) “The Bargaining Problem,” Econometrica, Vol. 18, No. 2, pp. 155—162.