Understanding Supply Chain Management Costs.

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What is the function of management when controlling supply chain costs and where can cost reduction add benefit to profitability?

Management can excel in cost leadership strategies by addressing the activities of a business that generate waste by becoming more efficient and optimizing resource utilization.

Cost leadership is a result of excellence in all aspects of supply chain management and is achieved through attention to quantitative improvement from activities required to produce goods and services.

Costs can be categorized by similar functions where they are incurred in a businesses operations and more effective management of costs begin with identification.

Which costs are core to the businesses main production activities?

Supply chain mapping may help in this regard. The most important aspects can be evaluated with an analysis of inputs and cost drivers. Lean methodologies can help to understand which activities may yield the greatest return when efforts are made towards an improvement in a structured cost-reduction project.

Wastes from inefficient operations can be traced back from each activity and cost of optimal performance can guide the development of performance metrics. These metrics can be further validated with a benchmark analysis across the similar categories of business activities and industry best practices.

Cost leadership should be approached as a continuous improvement objective rather than a radical single event. Consistency and service reliability measures should be monitored throughout any change effort and disruption to the customer understood as a risk which may result as a consequence. Changes from which the benefit and implementation are not fully realized ought to be controlled and managed without overlooking the importance of the current performance standards or compliance requirements.

 

Read on to review the activities where a supply chain management cost leadership journey can start.

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Incoming Inspection Costs

Associated with the inspection and testing of received materials and products to verify compliance with specifications.

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Supplier Management

Associated with the supplier criteria development and compliance with performance standards of quality and regulatory requirements.

#supplychain #procurement #costs

 

Inbound Freight and Duties Costs

Associated with the movement of material from a vendor to the buyer inclusive of administrative and costs, taxes, and customs fees.

#supplychain #logistics #costs

 

Tooling Costs

Associated with the design, development, and depreciation of the manufacturing work implemented with machinery to produce a purchased item.

#supplychain #manufacturing #costs

 

Material Process and Component Engineering Costs

Associated with documenting, communicating, and reviewing component specifications then improving the manufacturability of the purchased item.

#supplychain #production #costs

 

Receiving and Put Away Costs

Associated with the activity of taking possession of materials and then placing into storage.

#supplychain #inventory #costs