Supply Chain Strategy

Operations > Distribution > Service

Understanding the customer

Attributes or Priorities
1) Price
2) Response time
3) Service level
4) Lot size
5) Product variety
6) Innovation

Strategic Fit
1) Understanding the customer
2) Understanding the supply chain
3) Matching customers’ attributes with supply chain’s capability

Supply Chain Performance

1) Responsiveness
 Critical Spare Parts (Aircraft spare parts, medical equipment parts, server parts)
 Innovative electronic product
2) Efficiency
 Major grocery store eg NTUC

Supply Chain Drivers: inventory, transportation, facilities, information, sourcing and pricing
1) determine the supply chain’s performance in terms of responsiveness and efficiency
2) determine whether strategic fit is achieved within the supply chain

cross-dock

uncertainty
low: Purely functional products: gasoline
Somewhat certain: Established goods: crest toothpaste
Somewhat uncertain: New models of existing goods: new Ford Taurus
High: Entirely new products: the introduction of the smartphones

Inventory cost: holding, order, shortage, control

Holding risk:
• capital or opportunity cost (cost of money)
• deterioration
• pilferage
• obsolescence
• taxes
• insurance
• storage cost (warehouse)
• handling cost
Holdling cost per year = Irc
• I is the average inventory (unit)
• c is the unit value cost ($/unit)
• r is the carrying cost rate ( $/$/year)

Inventory = capital + service + risk + storage

Weighted average cost of capital (WACC)

• E = Market value of firms equity
• D = Market value of the firm's debt
• V = E + D = Total market value
• Re = Cost of equity
• Rd = Cost of debt
• Tc = Corporate tax rate
inventory capital cost = WACC*Inventory value

inventory turn = cost of goods sold / inventory $

Indication of how fast a particular sku is flowing through the warehouse/productivity of inventory, higher better.

Safety inventory: service level, demand variability, lead time

Product availability: a firm’s ability to fill a customer’s order out of available inventory
Stockout: a customer order arrives when product is not available
Product fill rate (fr): fraction of demand that is satisfied from product in inventory
Order fill rate: fraction of orders that are filled from available inventory
Cycle service level: fraction of replenishment cycles that end with all customer demand met

Continuous review: time between order qty different, order qty same, safety needs less.
Periodic review: time same, qty different, safety needs more