Replenishment policy must distinguish in auto industry — Cost and service paradox perspective

Customer service level and cost are two elements that create corporation competitive advantage in auto industry. A model is established proving that current logistics mode-same replenishment policy to all parts have to sacrifice one when achieving another. So a distinguished replenishment policy to hub is discussed. The mode is composed of three steps. Parts classification: according to holding risk and shortage risk, a portfolio matrix is established; Mode Comparison: direct distribution and milk-run, peak inventory and safety inventory are discussed; Strategy positioning: distinguished strategies are designed to different parts. Then, benefits of the new mode are represented in terms of transportation and inventory cost. Finally, a practical application largely confirmed that service and total cost are optimized at the same time via the new mode.