SUPPLY CHAIN STRATEGY

E d w a r d H . F r a z e l l e , P h . D .

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• Objective Function = Minimize Expenses • Constraint = Arrive within Twelve Hours In any decision-making environment, without an objective function AND constraint(s), any answer is right and any answer is wrong. Since most business and supply chain decisions are not framed this way, how are business or supply chain decisions made? Unfortunately, it often comes down to who can write the most caustic email, who has the boss’s ear, who has the most political clout, who is the most upset customer, what did the stock analysts say, etc. Every optimization has two components — an objective function and constraints. In supply chains, the objective function is usually to minimize total supply chain cost or to maximize some aspect of supply chain financial performance. The constraints should be the requirements of the supply chain service strategy for fill rate, response time, delivery frequency, and delivery quality. In less formal terms, optimizing a supply chain means maximizing the supply chain’s financial contribution to the business while satisfying the terms of the supply chain service policy. Supply chain optimization is not possible if the supply chain financial performance and costs are not defined and

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