According to the HC Starck Inc case study what are the costs

According to the H.C. Starck, Inc. case study, what are the costs from reducing the lead times?

Subject: Logistics

Solution

Question - According to the H.C. Starck, Inc. case study, what are the costs from reducing the lead times?

Reducing lead times will result in reduction of inventory costs as explained below:

1. Inventory holding cost:

                - Safety stock will be reduced across supply chain & that will result in holding cost associated with that inventory.

                - Lead time reduction will help in centralizing the inventory & that in turn will help in reducing cost of warehousing or storage cost(as number of storage points will go down)

2. Inventory capital cost: As inventory level reduced due to reduction in lead time & that will result in lesser money invested in inventory.

3. Risks cost (Obsolescence cost) – Reduction in lead time will reduce possibility of inventory obsolescence and any cost associated with it.

4. Transpiration cost – Assuming reduction in lead time will also help in network optimization & that will result total transportation cost across supply chain.

5. Stock out cost: Lesser lead time means better response to customer demand variation & so better customer service.