Supply Chain Optimizer

Economic Order Quantity (EOQ)

EOQ = sqrt(2DS / H)

Where: D = Annual demand, S = Ordering cost/order, H = Holding cost/unit/year
Total Cost = (D/Q)S + (Q/2)H + DC

Example: D=10,000, S=$50, H=$5 → EOQ = 447 units, 22.4 orders/year

Safety Stock & Reorder Point

SAFETY STOCK: SS = z x sigma_dLT
REORDER POINT: ROP = (Avg Daily Demand x Lead Time) + Safety Stock

SERVICE LEVEL FACTORS:
| Service Level | z-Score | Use Case          |
| ------------- | ------- | ----------------- |
| 90.0%         | 1.28    | Basic coverage    |
| 95.0%         | 1.65    | Standard          |
| 99.0%         | 2.33    | High service      |
| 99.9%         | 3.09    | Critical items    |

Inventory KPI Dashboard

ABC-XYZ Analysis Framework

ABC CLASSIFICATION (Value):
A Items: Top 20% of SKUs = ~80% of annual consumption value
  → Tight control, frequent review, accurate forecasts
B Items: Next 30% of SKUs = ~15% of value
  → Moderate control, periodic review
C Items: Bottom 50% of SKUs = ~5% of value
  → Minimal control, simple replenishment rules

XYZ CLASSIFICATION (Demand Variability):
X: Coefficient of Variation < 0.5 → Stable, predictable demand
Y: CV between 0.5 and 1.0 → Some variation, trend/seasonal
Z: CV > 1.0 → Highly irregular, sporadic demand

COMBINED MATRIX:
| Class | AX         | AY           | AZ            |
| ----- | ---------- | ------------ | ------------- |
| Strat | JIT/Kanban | Forecast     | Order on demand|
| Class | BX         | BY           | BZ            |
| Strat | Reorder pt | Buffer stock | Min/Max       |
| Class | CX         | CY           | CZ            |
| Strat | Bulk buy   | Periodic rev | Eliminate?     |

Vendor Scorecard

Supplier Evaluation Matrix

RATING SCALE:
4.5-5.0  Strategic Partner — expand relationship
3.5-4.4  Preferred Supplier — maintain, develop
2.5-3.4  Approved Supplier — improvement plan required
< 2.5    Probation / Exit — find alternative

Supplier Performance Tracking

Total Cost of Ownership (TCO)

TCO = Acquisition Costs + Operating Costs + Disposal Costs

ACQUISITION COSTS:
  Purchase price
+ Shipping / freight
+ Customs / duties / tariffs
+ Procurement labor
+ Quality inspection
+ Supplier qualification
= Total Acquisition

OPERATING COSTS (over useful life):
  Maintenance & repair
+ Inventory carrying cost
+ Warranty claims
+ Downtime cost (if component fails)
+ Training / support
+ Quality failures (scrap, rework)
= Total Operating

DISPOSAL COSTS:
  Decommissioning
+ Recycling / disposal fees
+ Environmental compliance
= Total Disposal

TCO = Total Acquisition + Total Operating + Total Disposal

TCO Comparison Template

Demand Forecasting Methods

Forecast Accuracy Metrics

MAD (Mean Absolute Deviation):
MAD = (1/n) x SUM(|Actual - Forecast|)

MAPE (Mean Absolute Percentage Error):
MAPE = (1/n) x SUM(|Actual - Forecast| / Actual) x 100

BIAS (Tracking Signal):
Bias = SUM(Actual - Forecast) / MAD
Target: Between -4 and +4

ACCURACY BENCHMARKS:
| Forecast Horizon | Good MAPE | Acceptable MAPE |
| ---------------- | --------- | --------------- |
| 1 month          | < 15%     | < 25%           |
| 3 months         | < 25%     | < 35%           |
| 6 months         | < 30%     | < 45%           |
| 12 months        | < 35%     | < 50%           |

Logistics Optimization

Transportation Mode Selection

Warehouse Layout Optimization

SLOTTING STRATEGY:
Fast movers (A items) → Near shipping dock, prime pick locations
Medium movers (B items) → Middle zones
Slow movers (C items) → High racks, far locations

LAYOUT PRINCIPLES:
1. Minimize travel distance for highest-velocity items
2. Group items frequently ordered together
3. Separate receiving and shipping areas
4. Reserve staging areas for cross-docking
5. Maintain clear aisle widths for equipment

Lead Time Analysis

TOTAL LEAD TIME:
Order Processing Time
+ Supplier Manufacturing Time
+ Transportation Time
+ Receiving / Inspection Time
+ Internal Processing Time
= Total Lead Time

LEAD TIME VARIABILITY:
Track actual vs. quoted lead times over 12+ orders
Calculate standard deviation
Use for safety stock calculations

LEAD TIME REDUCTION STRATEGIES:
| Strategy              | Typical Reduction | Effort    |
| --------------------- | ----------------- | --------- |
| Vendor-managed inv.   | 30-50%            | Medium    |
| Local sourcing        | 40-70%            | High      |
| Process automation    | 10-30%            | Medium    |
| Blanket POs           | 20-40%            | Low       |
| Consignment stock     | 50-80%            | Medium    |
| 3PL consolidation     | 10-25%            | Low       |

Supply Chain Risk Assessment

Risk Identification Matrix

RISK SCORING:
Likelihood: 1 (Rare) to 5 (Almost Certain)
Impact: 1 (Negligible) to 5 (Catastrophic)
Risk Score = Likelihood x Impact

ACTION THRESHOLDS:
20-25  Critical — immediate action, executive attention
12-19  High — mitigation plan required within 30 days
6-11   Medium — monitor quarterly, contingency plans
1-5    Low — accept or monitor annually

KPI Dashboard Template

See Also

• Operations
• Finance
• Risk Management