Offshore vs. domestic sourcing in a retail environment : a hybrid decision model utilizing a total cost of ownership and analytic hierarchy process methodology

In today's fast paced society, consumers expect their demand to be satisfied instantaneously; otherwise, they will go to the competition. Selecting a strategic supplier is an imperative undertaking, especially in a retail environment, to the company's success and profitability. Retailers have been steadily increasing their offshore penetration due to the low cost of goods. Global sourcing has become an important part of a retailer's strategy to achieve a competitive advantage. However, even though low cost is an important element of improving sales margins and profitability, additional criteria must be taken into consideration when determining the optimal sourcing strategy. This project addresses the issue of strategic supplier selection in a retail environment focusing on offshore versus domestic sourcing decisions. This is accomplished by developing a hybrid decision model which utilizes a total cost of ownership (TCO) model incorporated into an analytic hierarchy process (AHP) framework. This model is comprehensive and straightforward to apply in comparison to similar models within the literature. The model is applied to ABC Company, a major Canadian retailer. The analysis carried out in this project indicates that, for ABC Company, a domestic supplier is favorable.