Global operations bring companies opportunities for competitive advantage, thus sustainability. In return, they also require efficient management of the supply chains on long distanced operations to cope with higher costs incurred through worldwide businesses. This motivates the interest and efforts on supply chain network design through coordination, which needs to be performed according to the best appropriate operational setting for all the partners. The overall aim of this redesign is to ensure a more efficient and effective management of the supply chain and to reduce costs. Though competition, mainly triggered by globalization, necessitates a re-evaluation on supply chain network designs for many companies operating worldwide to check whether any cost efficient opportunities can be taken (Thomas and Griffin, 1996), in the recent years, traditional supply chain structure with several organizations operating independently, having conflicting objectives is being replaced by interdependent organizations operating optimally with integrated objectives through re-designing their supply chain networks, which enables an effective and efficient management of the supply chain (Altparmak et al., 2009). Network design and supply chain network design are mostly considered in the literature as concepts very much similar to strategic supply chain planning (Vidal and Goetschalckx, 1997; Simchi-Levi et al., 1999; Meixell and Gargeya, 2005; Altparmak et al., 2006; Chopra and Meindl, 2007). Supply chain network design allows coordination initiatives for optimizing the whole system. It involves a number of activities to decide; whether to open a facility or not, where to locate, which capacity and technology to choose, how to distribute products to facilities with minimum cost network design; while better satisfying customer demand. Supply chain network design concept is also closely interrelated with supply chain coordination. Coordination necessitates an integration process through the supply chain with an aim to increase the value added acts through the supply chain by redefining and connecting business processes and forming a new structure accordingly (Awad and Nassar, 2010). In the ideal case, the conditions for a ''win-win'' situation in a coordination mechanism are sought. Considering the significance of the challenges induced by the global necessities of today's business environment, many multinationals started questioning the process, potential impacts and benefits of traditional business models with respect to the alternative coordinative supply chain design models through the use of supply hubs. Through such assessments, the effects of these approaches on the supply chain performance are also questioned and quantified. Within the scope, current supply chain design is assessed and alternative re-design alternatives with the use of supply hubs are analyzed. Typically, production, transportation and inventory management processes are considered as part of such an assessment. This assessment includes making decisions on several logistics activities like production, transportation and order batch sizes as well as their frequencies and scheduling arrangements. A more specific emphasis is put on physical distribution of products throughout the supply chain channels (Cooper et al., 1997; Lambert and Cooper, 2000; Daugherty, 2011) and different insights to develop strategies for improving the channel distribution and service levels at downstream activities are provided. lobal operations bring companies opportunities for competitive advantage, thus sustainability. In return, they also require efficient management of the supply chains on long distanced operations to cope with higher costs incurred through worldwide businesses. This motivates the interest and efforts on supply chain network design through coordination, which needs to be performed according to the best appropriate operational setting for all the partners. The overall aim of this redesign is to ensure a more efficient and effective management of the supply chain and to reduce costs. Though competition, mainly triggered by globalization, necessitates a re-evaluation on supply chain network designs for many companies operating worldwide to check whether any cost efficient opportunities can be taken (Thomas and Griffin, 1996), in the recent years, traditional supply chain structure with several organizations operating independently, having conflicting objectives is being replaced by interdependent organizations operating optimally with integrated objectives through re-designing their supply chain networks, which enables an effective and efficient management of the supply chain (Altparmak et al., 2009). Network design and supply chain network design are mostly considered in the literature as concepts very much similar to strategic supply chain planning (Vidal and Goetschalckx, 1997; Simchi-Levi et al., 1999; Meixell and Gargeya, 2005; Altparmak et al., 2006; Chopra and Meindl, 2007). Supply chain network design allows coordination initiatives for optimizing the whole system. It involves a number of activities to decide; whether to open a facility or not, where to locate, which capacity and technology to choose, how to distribute products to facilities with minimum cost network design; while better satisfying customer demand. Supply chain network design concept is also closely interrelated with supply chain coordination. Coordination necessitates an integration process through the supply chain with an aim to increase the value added acts through the supply chain by redefining and connecting business processes and forming a new structure accordingly (Awad and Nassar, 2010). In the ideal case, the conditions for a ''win-win'' situation in a coordination mechanism are sought. Considering the significance of the challenges induced by the global necessities of today's business environment, many multinationals started questioning the process, potential impacts and benefits of traditional business models with respect to the alternative coordinative supply chain design models through the use of supply hubs. Through such assessments, the effects of these approaches on the supply chain performance are also questioned and quantified. Within the scope, current supply chain design is assessed and alternative re-design alternatives with the use of supply hubs are analyzed. Typically, production, transportation and inventory management processes are considered as part of such an assessment. This assessment includes making decisions on several logistics activities like production, transportation and order batch sizes as well as their frequencies and scheduling arrangements. A more specific emphasis is put on physical distribution of products throughout the supply chain channels (Cooper et al., 1997; Lambert and Cooper, 2000; Daugherty, 2011) and different insights to develop strategies for improving the channel distribution and service levels at downstream activities are provided. risk. Material exchanges among these product groups are mostly unusual. There are ten suppliers serving to the manufacturers in the region for those material groups. Suppliers are located in a wide geography, namely, China, the UK, the USA, Turkey, Germany, Italy, Malaysia, Spain, Austria and France. The company used to supply occasional products from alternate suppliers. However, this caused problems with division of orders among suppliers. Therefore, the management has recently decided to use single sourcing for all products. In early September, in one of the regular management meetings, Mr Ozpeynirci proposed that the company should consider augmenting the supply chain of the region by adding a supply hub. He discussed that the hub can be used to consolidate and disseminate the commonly used expensive materials purchased from long distance suppliers with an aim for potential savings and a more efficient supply chain management. He argued further that this will provide operational ease to all supply chain partners as there will be a single hub that each supplier will face likewise, a limited number of hubs each one a regional manufacturer will face. However, Production Director, Mr Hakan argued that this alternative model will bring additional costs to the whole chain as it adds intermediate storage locations to the supply chain. His point was that, the logistics costs will increase with increased number of shipments from suppliers to manufacturers over supply hubs. He estimated that transportation costs, customs and agencies costs as well as handling costs will almost be doubled. This argument was favored by other team members whereas a different insight is raised by Mrs Arman who is the Marketing Director. She said that this would be possible by the postponement of allocations of inventory to manufacturers' demands from the supplier to the aggregate inventory in the supply hub. Aggregate inventory kept at the supply hubs can provide risk pooling for all facilities of the region. She emphasized that this will better cover uncertainty situations and reduce the response time to demand changes as well. Her point was that, this alternative model will not only enhance operations or market response, it will also support risk management. She supported her idea by giving an example of a frequently faced situation: For a rush order, using an inventory which is allocated to a manufacturer will bring additional arrangements, approvals or paperwork. However, this process is easier to manage in with pool inventory. Mr Ozpeynirci took out form Mrs Arman's point and added that the consolidated shipments from suppliers to supply hubs will improve the negotiation power of the suppliers towards third party logistics providers in terms of transportation rates. But, these arguments were not sufficient to convince Mr Hakan. He pointed out that an additional cost for operating and renting supply hubs will be added over and this cannot be neglected. This part of the discussion took the attention of the Chief Finance Officer, Mrs Yurt. She commented that, on the other hand, the invoicing of the materials will be postponed to point of departure from supply hub from the point of departure from supplier, which will potentially improve the cash flow management of the region in general. This brainstorming atmosphere among the directors was shattered by a comment of the Purchasing Manager, Mrs Korkut; ''Whatever the case!!! You cannot convince any supplier for such a model''. Chief Executive Officer, Mr Tok interrupted this discussion and stated that this alternative is worthwhile considering. The management team agreed to meet by the next Friday, 18 September to quantify pros and cons of both models in detail and review structural differences as a first attempt. The main question in Mr Tok's mind was that; ''Will the benefits of alternative model cover the associated pitfalls or is it better to continue with the current traditional model?'' He further needs to assess whether to switch to a business model with the use of supply hubs will work for the supply chain of the whole region or not. The next Friday, the management team meeting started with the presentation of Mr Hakan, briefly reviewing the foundations of the current business model. He presented that, in the traditional business model, on the manufactures' side, the manufacturers decide on the quantity of their orders and on the time interval between issuances of two consecutive orders. Note that it is the manufacturers, who decide on the quantity and time interval of the shipments from the suppliers to the manufacturers. The contracts between the suppliers and manufacturers are based upon the ex-works sales of the products. Besides, invoices for orders are issued by the supplier to the manufacturer as soon as the orders are shipped from the supplier's facilities. This then implies that the associated costs during the lead time are incurred by the manufacturer. This is a cycle at the manufacturer's side and this generates a transportation cost, inventory carrying cost, receiving cost, customs and agencies cost and ordering cost, each per unit time. On the other hand, each supplier decides on its production lot size and on the frequency of production runs. Production technology owned by the supplier is characterized by the production speed, which combined with the decision on production lot size, determines the production period. Similar cycles at the supplier's side generate a production cost and inventory holding cost per unit time''. The presentation of Mr Hakan was followed by the presentation of Mr Ozpeynirci's proposal as an alternative. The alternative model is a modified version of the traditional model with the inclusion of supply hubs. He explained that, in the alternative model, perfect inventory information on the supply hubs is assumed to be available for each supplier. This entails the decision-making authority within that part of the supply chain, to be carried out by the suppliers. The total cost of a manufacturer is composed of inventory cost that occurs due to the inventory kept at the manufacturers' location, transportation cost that occurs due to the shipments to the manufacturers from the supply hub, receiving cost of shipments received from the supply hub, customs and agencies cost for payments to related parties for the shipments received and ordering cost which occurs due to an order issued to the supply hub. Transportation cost from the supply hub to the manufacturers is included because of the assumed ex-works sale that implies a delivery at the supply hub premises. Transportation of materials from suppliers to supply hub is managed exclusively by suppliers. The associated costs are then re-invoiced to manufacturers. The total cost incurred by a supplier is composed of inventory carrying cost that occurs due to the inventory kept at the supplier's location, the opportunity cost that occurs due to money tied up to the inventory kept at the supplier's and at supply hub's location, the production cost related with production realized at the supplier's entity, the transportation cost of shipments realized from the supplier to the supply hub and finally, the supply hub cost for hiring and operating a hub as a warehouse for inventory keeping and distribution purposes. The alternative model involves an additional transportation cost generated at the supplier's site for the shipments from the supplier to the supply hub. In the alternative model, suppliers are the owners of the products until the products are shipped from the supply hub to the manufacturers. These will then be re-invoiced to the manufacturers or reflected to the sales price as markups. The supplier decides the frequency of shipments from its facility to the supply hub as well as on quantity of these shipments. Like in the traditional case, production lot size and frequency of production runs are also decided by the supplier. In the alternative model, the opportunity cost of the supplier induces the opportunity cost of inventory held at a hub. Suppliers incur an opportunity cost for holding inventory at their own side as well as at the hub side. This is mainly related with the fact that it is the suppliers who own the inventory at supply hub. Mr Tok concluded that, although this picture shows the main differences between the structures and cost components of the both models, it was not sufficient for the management team to make a decision. They all agreed that, in order to make a clear quantitative assessment to outline if such a re-design will improve the effectiveness as well as efficiency of the whole system, relevant costs and cash flow figures of each model need to be analyzed in details first. A comprehensive picture can only be outlined after a comparison analysis is carried out between the costs of each model. Therefore, the team decided to meet on 15 October to review the case with additional information on critical decision variables and total costs of each party for both models. With joint work by related teams on this issue, on 15 October, the company identified cost figures of each model as well as optimal location of a single supply hub for MEA region. Although the optimal number of supply hubs turned out to be two, the managers later agreed that it is better for such a long-term decision to start with assessing to work with a single hub at first. Therefore, related figures were calculated accordingly.

Case Study : Assess your business model strategy to sustain

Analyse cause and effect, organise analysis by issue, apply relevant theories, and use the case study to illustrate theoretical discussion.