The supply chain baseline model for OIS establishes the model’s validity . The baseline model attempts to replicate the logistics flows and costs for a given historical base time period. The analysis team then compares model results with known historical values and assesses model accuracy. The underlying rationale is simple: if we can reasonably replicate history, then our willingness to accept recommendations about the future increases. However, failure to replicate known historical values calls into question the results of forward-looking scenarios.
The procedure OIS uses to establish model validity is to construct a historical cost/flow baseline, which is then compared with corresponding known values. Objective is within 2% of accounting data. The broad outline of this process is described below:
Action Steps
1 Establish historical customer demand levels.
2 Establish historical flows for each transportation link, by commodity.
3 Establish historical flows for each facility location, by commodity.
4 Multiply each transportation link flow by the corresponding unit transportation cost.
5 Multiply each facility location flow by the corresponding unit cost
(procurement, manufacturing, DC locations).
6 Establish the fixed cost for all corresponding facilities with positive flow
(plants, production lines, DC locations).
7 Add the results from Steps 4 through 6.
8 Compare volumes and costs with known historical values and assess overall
model validity.
Note: Steps 1 through 7 are executed by the cost/flow OIS baseline model. The analysts must perform Step 8 outside of the base line model.
The cost/flow baseline module multiplies facility and transportation historical flows by corresponding variable costs and adds in fixed costs. Reports are then prepared to summarize the process. Therefore, running a cost/flow baseline does not alter any element of the OIS database. On the other hand, virtually every element of the database influences the cost/flow baseline. This is the first time that “all the pieces come together” to describe the complete logistics network underpinning the OIS model.