Hello everyone. In this week, we shall dive into Quantitative Supply Chain Analysis or Supply Chain Analytics. Let's first talk about what data to collect and how to estimate various cost parameters. The question is, to assess the impact of the push/pull strategies, what data should we collect and how to use it? To answer this question, let's consider an average or typical store across the nation. We need to estimate the inventory holding costs, also the shipping costs, and picking/packing costs. We also need the data of sales volume and inventory levels by product. With this data and cost estimates, then we can calculate inventory, shipping, and warehousing costs for the strategies by product. We first estimate the inventory cost rates, that is the inventory cost per week per unit at the stores. We note that the inventory cost for VASAT has two major components: the capital cost of the investment in inventory and the depreciation due to obsolescence. The capital cost per week per unit equals the annual capital cost over 52, where the annual capital cost is the product value times the return rate if we invest the money tied up in inventory elsewhere, and 52 is the number of weeks in a year. The depreciation per week per unit can be calculated by the product value subtracting liquidation value, which is the value of the product at the end of its product life cycle, then over the product life cycle. Assuming zero liquidation value, eight percent return rate, and a life cycle of 26 weeks / half a year. The inventory cost per unit per week is $20 for a smartphone and eight dollars for a feature phone. Here I'd like to show you how to use Excel to do the calculations for the inventory cost rates. We first enter the parameters like the product value, liquidation value, life cycle, and capital return rates in these cells. Recall that the inventory cost per week per unit equals the annual capital cost over 52, plus product value subtracting liquidation value over the product life cycle. To do the calculation, let's open this new cell, you type =, then the first is product value times the capital return rate which is 8 percent and divide by 52. That's the first part of the equation. Then plus parenthesis product value subtracting liquidation value, over product life cycle. Just click on these cells to select them and type enter. Here we go. We then estimate the shipping cost rates. That is, the shipping cost per unit for the push and pull strategies. Please note that the estimates are carrier and time dependent, but the methodology should be generally applicable. Let us first estimate the shipping cost rate under the pull strategy. For unit and overnight express shipping, the cost can be very high. For instance, FedEx may charge $12 per unit. Under the push strategy however, standard batch shipping is used and planned in advance, so the shipments can arrive in the stores at the scheduled time. Using FedEx as a benchmark, the ratio between overnight and the standard shipping costs can be 2.5 over one, with the volume discount of a 50 percent due to batch shipping, the shipping cost per unit under the push strategy is $12 over 2.5 times 50 percent, which is $2.40.