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Designing Supply Chains for New Product Development by Antonio Arreola-Risa, Barry Keys

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Chapter 8

Cost Modeling

Every product has a cost structure, and good cost models are imperative for being able to understand complex business situations. But what happens when the product is simply “too complex”? There are “too many” processing points, “too many” uncertainties, and “too many” risks? This chapter will explore a couple of different approaches to developing cost models and then demonstrate how using those models assists in supplier engagement strategy development.

High-Level Risk Model

The first model to discuss is what we called a “high-level” risk model (HLRM). This model was designed to assist the project team in gaining insight regarding possible hedging strategies and their associated costs, against catastrophic events at various ...

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