Volume-based tailored sourcing

In volume-based tailored sourcing, the predictable part of a product s demand is produced at an efficient facility, whereas the uncertain portion is produced at a flexible facility. Benetton provides an example of volume-based tailored sourcing. Benetton required retailers to commit to about 65 percent of their orders about seven months before the start of the sales season. Benetton subcontracted production of this portion without uncertainty to low-cost sources that had long lead times of several months. For the other 35 percent, Benetton allowed retailers to commit orders much closer to or even after the start of the selling season. All uncertainty was concentrated in this portion of the order. Benetton produced this portion of the order in a plant it owned that was very flexible. Production at the Benetton plant was more expensive than production by the subcontractor. However, the plant could produce with a lead time of weeks, whereas subcontractors had a lead time of several months. A combination of the two sources allowed Benetton to reduce its inventories while incurring a high cost of production for only a fraction of its d and. This allowed it to increase profits. 

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