Optimization

Balancing Cost, Cash, and Service is the most significant element of supply chain management. While service may be the most important customer-facing metric, cost and cash are essential to the health of the business.

The Supply Chain Triangle: Cost – Cash – Service

Service

From the supply chain perspective, service includes lead time to fill orders, order fill rate, product variance, etc. An improvement in any of these elements may need an increase in inventory, which impacts cash. Another way to achieve higher service is to increase production change over or shorten lead time; hence, higher cost.

Cost

Supply chain costs include production, transportation & warehousing (T&W) costs, ordering cost, etc.

While it is tempting to source cheaper products from certain countries or increase order quantities to reduce costs, that could lead to an inventory increase, reduced cash, or a longer reaction time, impacting service.

Cash

Supply chain controls cash via inventory. Reducing inventory will impact service level: not having the products at the right place at the right time, or having to narrow the product portfolio. Maintaining the service level while reducing inventory comes at the expense of cost: quick production change over, expediting fees, air freight, etc.

How can I help?

Balancing Cost – Cash – Service requires cooperation among different departments: Sales, Marketing, Procurement, etc.

I can help to identify opportunities for improvement using the below practices:

  1. Total Cost of Ownership (TCO) Analysis
  2. Identifying Non-performance Inventory (NPI) to optimize product portfolio
  3. Inventory Optimization