Value Creation: Assessing the Cost-Service Trade-off

Enver Yücesan
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Enver Yücesan: INSEAD

Chapter 4 in Competitive Supply Chains, 2007, pp 43-62 from Palgrave Macmillan

Abstract: Abstract In the previous chapter, we have emphasized the importance of product, process, and supply chain design in a dynamic environment where industry structures evolve continuously. While we have advocated a concurrent design approach along these three dimensions, one must resolve key cost-service trade-offs in each of those dimensions. In other words, one must assess whether investing in a product, process or supply chain redesign initiative is a value-creating or value-destroying proposition. For instance, if the increase in the customer’s WTP due to the new product design is not sufficiently high to justify an investment of four man-months of additional research and development (R&D), this is a value-destroying proposal. To assess these trade-offs in an objective fashion, supply chain professionals need a simple but rich modelling tool. In this chapter, we formalize the cost-service trade-off, which affects supply chains, through a materials management framework. Such an inventory policy will not only allow us to quantify the cost-service trade-off, but will also identify (and cost out) principal levers one can deploy for mitigating such a trade-off.

Keywords: Supply Chain; Inventory Level; Fill Rate; Safety Stock; Base Stock (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-59836-2_4

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DOI: 10.1057/9780230598362_4

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