Supply Chain Costing and Performance Management, 2nd Edition

CHAPTER 6Overview of Cost Tools and Cost Classification

COST SYSTEMS HAVE THE ability to portray costs in a variety of different ways and managers can select from a multitude of tools that can be useful for measuring and reporting supply chain costs in ways that support decision making. The supply chain cost measurement, estimation, and reporting tools that firms use draw heavily from the management accounting discipline. Supply chain professionals who have an understanding of costs, cost classification, and the major tools that can be used for supply chain costing will be able to work more effectively with management accountants on costing issues and educate managers in and outside the firm on supply chain costing improvement efforts.

The level of cost knowledge among supply chain professionals in firms can range from very sophisticated to relying solely on general ledger accounts for cost information. The differences in cost knowledge track closely with the emphasis management places on cost control. Companies with more sophisticated cost systems have a management team that focuses on controlling costs and understanding how their decisions and the behavior of their trading partners drive costs within the firm. In some cases, executives indicate that a “numbers culture” or a “strong cost‐management culture” permeates their company. In these firms there is a need to “run the numbers” whenever recommending a decision, and there is a constant challenge to find ways to improve ...