What should be framework for following: Client is a regional retail chain. They want to reduce their supply chain cost. 

Hi Aditya,

I see that this problem consists of 2 questions:

1. Where can we reduce supply chain costs?
2. How to reduce them?

First we need to start with figuring out where exactly the problem lies. I would proceed with a value chain analysis, going link by link and figuring out how each step contributes to final client's costs. Basically, use the Pareto principle (80/20 rule) to figure out where to direct your effort.

Second, I would start with a hypothesis that we can reduce those costs. We could reduce costs in 3 obvious ways:

1. Upstream integration - clients starts doing supplier job by himself. Could be not a feasible solution, and, therefore, we need to test whether it makes business sense for our client to proceed with this route.
2. Supplier change - if there are suppliers that could do the same job cheaper. Have access to cheaper goods or better logistics.
3. Operations improvement - this point could be actually subdivided in 2: a. better partnership with suppliers (think JIT - just-in-time delivery, where client shares information with suppliers to achieve operational excellence) b. supply chain redesign - sometimes it's possible to achieve better results if you can completely change the supply chain.

If there are any better ways to approach this problem, they don't come to my mind. I hope that it helps.

- Tadeus

HI

Another approach could be to break down the various components of supply chain and analyze their costs for each of the compoenents of revenue generations. For. eg you may want to break costs for each product cluster as

1. Inbound costs, which could be further broken down into - Procurement costs/manufacturing costs(in case we make or grow anything on our own), Logistics expenses interms of warehousing and transportation. Another branch would be costs of inefficiency interms of buying low quality goods which leads to rejections or cost of inventory.Then we can further break each component into labour expenses, raw material expense, fuel expenses, cost of equipments etc.

2. In-store costs - We can define cost of handling. FUrther we could highlight cost of inefficiencies in terms of rejections of peroishable items as they were never sold due to poor demand planning.

3. Outbound costs - If they have home delivery option. Key thing to look here is whether they have ecomonies of scale for each outbound delivery they make.

3. Cost of reverse logistics - This traditionally is the biggest burden on any retailer, in case they offer free or subsidized returns.

Look at each of these cost buckets and compare them with the competition.