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CSOWM: Supply Chain Strategy and Network Design

CSOWM · Work through your exam, one topic at a time.

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Supply Chain Strategy and Network Design

Supply chain strategy and network design tests whether you can connect competitive priorities to structural choices: how many facilities, where they sit, what capacity they hold, and which activities are pushed or pulled. Expect questions on strategic fit, postponement, total landed cost, risk pooling, and facility location.

Core rules

  • Strategic fit means the supply chain's cost, speed, flexibility, and responsiveness match the value proposition. A cost leader should not fund responsive capacity without a service reason.
  • Place the push-pull boundary where demand becomes predictable. Postponement (late differentiation) works when generic inventory is cheap and customized inventory is expensive to hold.
  • Network decisions are made on total landed cost, not unit price: purchase, freight, duty, handling, inventory carrying, obsolescence, and risk.
  • Risk pooling: combining independent demand streams reduces safety stock roughly with the square root of the number of streams, but only when demands are independent and service levels are equal.
  • SCOR's six processes are Plan, Source, Make, Deliver, Return, and Enable.

Worked example

Two regional DCs each face weekly demand with sigma = 100 units, lead time 1 week, and target cycle service level 95% (z = 1.65). Safety stock at each DC = 1.65 x 100 = 165, total 330. If demand is independent, combined sigma = sqrt(100^2 + 100^2) = 141.4, so central safety stock = 1.65 x 141.4 = 233 units. Pooling saves 97 units, about 29%. The decision still needs the added inbound and outbound freight and longer last-mile cost from one central DC; pooling is not automatically the answer.

Traps that cost marks

  • Choosing the lowest freight rate and calling it the lowest total cost.
  • Pooling correlated demand, such as two stores in the same climate, and assuming full square-root savings.
  • Confusing postponement with make-to-stock; postponement delays differentiation, it does not eliminate forecasting.
  • Sizing capacity on average demand rather than peak or service-level demand.