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Supplier networks, the OEM hub and sourcing efficiency

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In this paper, we explore how sourcing costs within a firm's supply chain can be better managed by managing the upstream supply network of the firm. Building on our three-year empirical nvestigation of the automotive industry, we propose the concept of the OEM hub, a collaborative centre involving the firm (the OEM), its suppliers and raw material suppliers as the principal alignment mechanism for managing the value in upstream sourcing of a firm. We model non-cooperative and cooperative OEM hub scenarios, anchoring it to our empirical work, and examine the resulting profits along the supply chain for three facets of the OEM hub: (1) direct raw material supply to suppliers, (2) cooperation between suppliers, managed by the OEM and (3) financing the supply chain with capital sourced at least cost. Our results show that OEM hub operations can add value to the upstream supply chain, and help firms manage their sourcing better.

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