Trade Facilitation and Supply Chain Network Design

Abstract

World trade has expanded rapidly over the past decades. Low production costs in developing countries, along with cost efficient logistics networks have led to the allocation of manufacturing plants in offshore industrial sites. However, lengthy customs’ clearance and service time delays and thus lengthy and highly variable lead times can undermine the efficiency of offshoring within global supply chain networks. Nearshoring, namely the practice of allocating manufacturing capacity next to the demand points, is a corporate response to such concerns. The purpose of this paper is to provide a quantitative strategic decision support methodology that captures the impact of the variability of order lead time demand on supply chain network design while further identifying: (i) the optimal mixture of nearshore/offshore production allocation capacity and (ii) the radius in the hinterland within which a global company can penetrate markets according to the entry point’s customs efficiency. Various “what-if” analyses are conducted in order to explore the sensitivity of the production allocation mixture and the trade-off between travel distance and customs efficiency. The usage of the proposed methodology is demonstrated through its application on an appropriately simplified problem instance, while obtained managerial insights are discussed.