CHAPTER 10Tools for Reducing Supply Chain Costs

SUPPLY CHAIN COSTING ENCOMPASSES a variety of tools and software technologies. The appropriate method often varies with the question being asked, the position of the firm across the supply chain, and different circumstances that exist in the firm or supply chain. Some cost tools are particularly useful for improving the supply chain cost structure, while others are more valuable for cost planning, understanding profit margins, or as part of a strategic analysis of supply chain costs. Certain tools work well in mass production environments, while others better support lean or manufacture‐to‐order production methods.

Considerable overlap exists among several different costing tools, and most decision‐making teams are likely to find that they will extensively use only a few of the many possible costing methodologies. How cost information influences employee behavior and their decisions may cause different management teams to prefer alternative tools.

A key part of supply chain costing is measuring the amount of costs incurred in the “as is” state. Managers at all levels and across trading partners need to understand what and why things currently cost what they do. Executives and managers seek to answer questions such as:

  • “Where does the firm make or lose money?”
  • “What is the landed cost of the product at the customer's receiving dock?”
  • “How well do actual costs align with standard costs?”
  • “Where is there the greatest opportunity ...

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