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

Aditya
Tadeus replied on 07/28/2017

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

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