OPS 445 Week 1 Supply Chain Strategy and Design Example

The Part in the Bay Before Lunch: Supply Chain Strategy and Network Design for a Regional Auto Parts Chain

[Student Name]

University of Phoenix

OPS/445: Strategic Supply Chain Design and Collaboration

Week 1 Assignment

[Instructor Name]

[Date]

Big River Auto Parts, its stores, distribution centers and figures are composites written for a model paper.

Big River Auto Parts is a composite chain of 220 auto parts stores in Missouri, Arkansas and Kentucky, with sales of about $780 million. About 55 percent of sales go to do-it-yourself customers at the counter and 45 percent to commercial customers, independent repair shops and dealers, who order by phone or online and expect delivery from the nearest store. Big River stocks parts for thousands of vehicle models, about 300,000 part numbers across its network. Commercial customers have begun shifting to a competitor that delivers rarely used parts faster. This paper examines Big River's supply chain strategy and network design.

Two Customers, Two Needs

Do-it-yourself customers want low prices, friendly advice and common parts in stock at a store near home: brake pads, batteries, filters, wiper blades. They will wait a day for an unusual part. Repair shop customers think in hours. A car on a lift that is waiting for a part earns nothing, so shops want a specific part, often an unusual sensor or a model-specific hose, delivered within an hour, and they choose suppliers that do this reliably.

Demand and Supply Uncertainty

Lee (2002) argued that supply chain strategies should match product uncertainties on both the demand and supply sides, distinguishing efficient, risk-hedging, responsive and agile supply chains. Big River's demand side varies by item. For common parts, demand across the chain is steady and forecastable. For the long tail, any one part number sells rarely at any one store, perhaps once or twice a year, and when it sells, a shop needs it now. On the supply side, most parts come from established manufacturers with stable lead times, though some electronic parts have become less predictable.

Where the Chain Should Sit

Chopra and Meindl (2016) describe strategic fit as aligning the supply chain's responsiveness with the implied uncertainty of the demand it serves. For common parts and do-it-yourself customers, Big River's chain should be efficient: replenish stores from distribution centers in full, regular truckloads, keep costs low. For long-tail parts sold to shops, it must be responsive: hold those parts close enough to deliver within an hour, even though each sells rarely.

The Current Network

Big River has two distribution centers, near St. Louis and Little Rock, each holding about 200,000 part numbers and replenishing stores twice a week. Each store holds about 25,000 part numbers. When a shop wants a part the store lacks, the store requests it from the distribution center, and it arrives on the next truck, often two or three days later. Big River loses those sales to the competitor, which stocks deeper inventory in a layer of large hub stores.

A sensor that arrives in three days is a sensor the shop bought from someone else.

A Tiered Design

Melo et al. (2009) reviewed facility location models in supply chain management and noted that location decisions are closely linked to inventory, transportation and service level decisions and should be made together. Big River's proposed design adds a middle tier:

Two distribution centers, unchanged, holding the full range and replenishing all stores.

Sixteen hub stores, chosen so that most stores are within about 45 minutes, each holding about 80,000 part numbers, the most-requested long-tail parts for their region, and receiving daily deliveries from the distribution centers.

About 200 stores, holding about 25,000 common parts, which can get a long-tail part from their hub store within about two hours by a shuttle that runs several times a day.

For shops near hub stores, delivery within an hour is possible directly from the hub.

Choosing the Hub Locations

Hub stores were chosen with a simple coverage analysis. The team mapped every store and every commercial customer, estimated drive times on local roads at mid-morning traffic and searched for the smallest set of existing stores that would put at least 85 percent of commercial sales within 45 minutes of a hub. Sixteen stores met the target. Each needed a larger backroom, so the analysis favored stores with expansion space. Two rural regions in the Ozarks, where stores sit far apart on winding roads, could not be covered within 45 minutes; there, Big River will deepen inventory at the existing stores for the parts local shops buy most, a smaller version of the hub idea.

What Stays the Same

Not everything changes. Do-it-yourself customers will see little difference, because common parts already sit in every store and replenishment from the distribution centers continues twice a week. Purchasing from manufacturers continues in full truckloads to the distribution centers. The change is concentrated where the strategy says responsiveness matters: the long tail of parts that repair shops need quickly.

Trade-Offs

The tier adds inventory of about $34 million across the 16 hubs, daily distribution center deliveries to hubs and hub-to-store shuttles. In return, Big River expects to recover commercial sales, estimated at about $40 million a year now lost to the competitor, at a gross margin of about 45 percent, roughly $18 million, which comfortably covers the added carrying and transport costs of about $9 million a year.

Measures of Strategic Fit

Measures include the share of commercial requests filled within one hour and within two hours; first-time fill rate at stores and hubs; commercial sales growth by market; inventory turns by tier; and distribution cost per dollar of sales. Qi et al. (2017) found that firms whose operations and supply chain strategies were aligned with integration practices achieved better performance, which these measures are meant to track.

Conclusion

Big River serves two customers with different needs. Its supply chain should be efficient for common parts and responsive for the long tail that repair shops need urgently. A tier of 16 hub stores between distribution centers and stores places rarely used parts close enough to deliver within one or two hours, at a cost the recovered commercial sales should repay. The coming weeks address the partners, collaboration models and information sharing this design requires.

References

Chopra, S., & Meindl, P. (2016). Supply chain management: Strategy, planning, and operation (6th ed.). Pearson.

Lee, H. L. (2002). Aligning supply chain strategies with product uncertainties. California Management Review, 44(3), 105-119. https://doi.org/10.2307/41166135

Melo, M. T., Nickel, S., & Saldanha-da-Gama, F. (2009). Facility location and supply chain management: A review. European Journal of Operational Research, 196(2), 401-412. https://doi.org/10.1016/j.ejor.2008.05.007

Qi, Y., Huo, B., Wang, Z., & Yeung, H. Y. J. (2017). The impact of operations and supply chain strategies on integration and performance. International Journal of Production Economics, 185, 162-174. https://doi.org/10.1016/j.ijpe.2016.12.028