Inventory Optimization through an Integrated Model: A Case Study

Abstract

In order to reduce operating costs and accelerate deliveries, smarter practices like the ‘Hub and Spoke Distribution Model’ have been adopted by supply chain enterprises. However, it’s high time for strategic decision-makers in logistics to evaluate whether it would be an ideal match for the supply chain. For taking a holistic decision, two factors play an important role – the nature of the business and the size of operations. Accordingly, the purpose of this study is to understand the numerous benefits of the Hub and Spoke model as compared to earlier practices and how does it work in the supply chain model of the select industry. The Hub and Spoke model is used when there is a multiple location sourcing, with central locations called the “Hub” or single source of sourcing and multiple points of distribution. For this study, as select industry, we have identified CESC, India’s first fully integrated electrical utility company, which has a large distribution network comprising the twin cities of Kolkata, Howrah and part of Hooghly District. The analysis shows that the application of the Hub and Spoke Model in Supply Chain of CESC reduces power tariff; Operation and maintenance expenses; Cost of capital equipment for the distribution network; Cost of maintenance of distribution network; furthermore, maintains low inventory. Yet, it is worthwhile to mention that application of this integrated model has some limitations - if just one spoke were to get out of place, however, the entire model can start to experience problems. However, to overcome these problems, proactive organizations need to implement a multiple hub system.

Keywords: Inventory Optimization, Integrated Model, Inventory Management, Supply Chain, Transportation and Distribution Industry, CESC

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