SUPPLY CHAIN STRATEGY

E d w a r d H . F r a z e l l e , P h . D . RightChain™ agreed but said his problemwas that their distribution was too efficient . I asked him to explain. He said that the VP of Retail’s bonus was based on increasing sales per square foot in the stores and maximizing in-store availability. He said that their distribution program had resulted in $250 million in lost sales the prior year, and that they needed a way to align the objectives of distribution and retail. That’s code for, “my business partner and I are ruining each other’s lives.” I told him that aligning corporate objectives was what we do for a living and that we could help. To make a six-month long supply chain strategy story short, by incorporating lost sales cost, inventory carrying cost, transportation cost, and warehousing cost in their RightChain™ objective function, we were able to develop a supply chain strategy that put more than $50 million on their bottom line by cutting their lost sales by $240 million and optimizing (not minimizing) their total logistics cost. RightChain™ Constraints If all we had was an objective function, optimization would be easy. Admittedly facetious, but unfortunately common, here’s a storyline that is played out in many companies. Let’s take each of the total logistics cost components, one by one. First, transportation. Transportation has become so | 51