Supply Chain Costing and Performance Management, 2nd Edition

CHAPTER 3The Nature of Supply Chain Costing

SUPPLY CHAIN MANAGEMENT REQUIRES a much broader view of profits, costs, and cost management than most firms currently possess. Senior executives across industries and at different levels in the supply chain have observed that their firms need to extend their “line of sight” to include their upstream and downstream trading partners’ costs of performing different activities within key processes. The firms need this information to effectively manage and reduce supply chain costs, make effective cost trade‐offs, and know where the greatest opportunities exist in their supply chain to reduce costs, increase profits, and improve performance.

Several formidable challenges confront managers attempting to expand cost visibility beyond their firms’ boundaries. Despite the focus most firms place on supply chain management, managers in many small suppliers and customers are not familiar with the concept or how their interactions with other trading partners drive costs and performance throughout the supply chain. The cost systems most firms use continue to focus internally, emphasize direct costs, and use traditional costing methods and tools to support supply chain decision making.

NATURE OF SUPPLY CHAIN MANAGEMENT

Considerable confusion continues to exist regarding the term supply chain management. Everyone has a somewhat different perspective or definition of this concept. Many logistics professionals and academics have suggested that