Supply Chain Costing and Performance Management, 2nd Edition

CHAPTER 11Supply Chain Cost Planning Tools

AS CUSTOMERS ORDER MORE or less volume of products, change the mix of a firm's products they use, or alter demands for services, several questions become critical for supply chain managers. What is the financial impact of these changes for the firm? What will future profit‐and‐loss statements look like? How will profit margins change? If a change is made, what will be the impact on resources and future expenses?

When questions like these are asked, one needs more than a crystal ball to answer them. This is when the focus turns to the predictive view of supply chain costing. A variety of costing tools exist that are valuable for supply chain cost planning. This chapter examines several of these tools.

The best time to manage costs is before they are incurred. By carefully evaluating actions in advance, supply chain managers can avoid decisions that commit them to higher than necessary future costs. Modeling cost behavior, listening to customers, carefully evaluating value chain relationships, estimating future costs, analyzing the acquisition of capital assets, and focusing on core competencies are all important elements of cost planning.

Cost estimation is an inherent part of every supply chain costing tool. Measures of incurred costs are useful for predicting future costs. Budgeting, capital budgeting, target costing, and even simple cost volume profit models are each built on multiple types of cost estimation.

Cost volume profit ...