Costs supply chain view

Supply integration Highly interdisciplinary, evolving from process-oriented cost reduction efforts Complete supply chain view, platform for competitive initiatives 3... 

As mentioned above, one other big lever is to optimize product and information flows, taking a cross-functional view of the entire supply chain from the original supplier to the end customer. This can reduce inventory levels substantially, as well as smoothing out production instability and its associated costs. It also often helps to improve levels of customer service, such as on-time delivery, and capacity utilization. 

There are two main success factors for a company in the market ftom the point of view of the supply chain. One is to bring the product with the right quality at the right time to the customer. The other is to have the best and most cost-effective processes. Therefore, there is always pressure to optimize the processes with respect to both product quality and cost effectiveness... 

In an organization, transportation requirements may cover a wide range of territory and frequency characteristics. Decisions are usually made on the basis of cost as long as customer requirements are met. When making decisions that affect the organization s supply chain, it is important not to look at transportation alone or as an independent activity. Instead, transportation should be viewed in the context of the entire supply chain in order to make the most effective decisions (Figure 2). 

Transportation is flow of goods between supply chain stakeholders. The flow can be between and through any echelon of the supply chain from warehouse to factory, from factory to customer etc. The transportation problem can be viewed as a network flow problem where the nodes represent stakeholders, edges represent the cost and amount of transportation between them basically. Consider the network in Fig. 4.1. 5 represents the amount of supply at node n. D is the amount of demand at node m. This network is a direct shipment network. 

Perhaps it would help to view the decision from the perspective of the shipper. The shipper had to contend with the transport costs, inventory costs, other incidental costs as a total supply chain cost effect. Would it help if ABC enabled customers to evaluate the total supply chain cost of alternatives If salespeople for ABC Rail could get an idea of competitive total supply chain cost by customer route, then ABC could identify how to adjust schedules and decide the number of wagons to wait for in order to beat the competition. Such an approach, repeated over and over across customers, would generate a customer-responsive train freight schedule. ABC had heard of an initiative by Burlington Northern called ShipSmart, which offered a similar service to shippers. Should ABC Rail use such an approach ... 

Companies also find, as they mature, that it is difficult to get the complement of metrics necessary to view the supply chain as a system. There are six metrics in supply chain management that are tightly woven with intrinsic trade-offs. These metrics are asset utilization, days of inventory (or inventory turns), forecast accuracy, customer service (on-time delivery of orders shipped complete), cost of goods, and revenue growth. 

So, how do companies make the journey to build long-term value in their supply chains How do organizations move from a myopic focus on cost to a more holistic view to drive value There are three primary steps. The greatest impact happens when the following three steps are taken simultaneously. 

These are also the easiest supply chains to outsource to a third party. However, not all industries have viewed this opportunity the same. For high-tech leaders that defined the best use of their manufacturing capacity to be focused on the launch of new products (with less of a focus on internal asset utilization), they quickly outsourced products in this quadrant to third-party manufacturers. For consumer products leaders with a myopic focus on internal asset utilization, they keep the production of products in quadrant II for internal production, and outsource products in quadrants I and IV. As a result, consumer products companies reduce manufacturing costs but increase total costs of the supply chain. 

Some view supply chain design as integral to their strategies for competing. For them, competing successfully centers not only on products, but also on the operations that make up the extended product as described in Chapter 1. These operations deliver the physical and extended products to customers hands. With this viewpoint, supplier relations, logistics, and information systems support customer satisfaction and fall within the definition of SCM. This, in turn, leads to increased market share and profit. Costs, while important, are secondary with this viewpoint. Efforts to reduce cost must also support strategy. 

The quotation above provides reengineering expert Michael Hammer s view of the need for operational improvement. Certainly, these operational improvements include supply chain processes, and our own observation would support Hammer s position that creativity and execution are indeed lacking. One obstacle is the inability to look beyond budgetary cost controls to link supply chain operations with the strategies we use to improve competitive position. The purpose of this chapter is to describe assessment tools to make these links. We cover three types of assessment tool, each of which has a dedicated section in this chapter ... 

These authors would exclude legal combinations from their definition of partnerships. Our view is that legal combinations do fall within the partnership umbrella. Most mergers and joint ventures have some supply chain implications seeking synergy in the form of new markets or cost efficiencies from the combination. 

The concept of core competency is important to SCM. Traditional views of roles in the supply chain are giving way to new views. Chapter 18 describes the emerging model for supply chain partnerships. The traditional and emerging models reflect the impact of both cost reduction and competence building in the evolution of supply chain partnerships. 

Also, in this view, competitive position depends on product innovation and being distinctive in the competitive field, in some ways different from everyone else. We asserted previously that the supply chain is an important opportunity to establish that difference. Other models contend that being the low cost producer equates to market leadership. The next section summarizes opposing viewpoints. 

The vertical axis in Figure 27.1 reflects different levels of information capture along the supply chain. Single company data (Level I) expands to take into account the cost of capital (Level II). This includes the fixed assets and working capital required by the company to operate. At Level III, companies share cost data to gain a multicompany view. At Level IV, the final stage, cost drivers are applied to activity-based costs to develop supply chain product costs. These costs support collaborative strategic product line decisions at a multicompany level. 

For a supply chain that has been in operation for a while, the focus might be on cost. A natural response is to focus on the most expensive activities. An alternative is examining not only the most expensive, but also the most improvable activities. This can be accomplished with a top-down approach. That means starting with a view of the supply chain as a separate enterprise and expanding downward into detailed activities as long as it makes sense. 

Applying the concepts described above paves the way for mapping costs in the supply chain. This provides a high-level view of where costs are incurred to pursue cost reduction and avoid chasing visible, but unimportant, cost components. If the supply chain supports multiple products,... 

While the authors describe the CCR in the eontext of a single manufacturing operation, it also has important implications for supply chains. This is particularly true given the trend toward fewer partieipants in the supply chain. From a cost point of view, it provides a different perspective for understanding an activity s real cost if that activity happens to be a CCR. It also has implications for directing cost reduction efforts. 

In our view, an important decision in this process is whether the product is functional or innovative. Functional products require different supply chains than innovative products. Section 5.1.3 discussed the difference between the two. If the product is innovative, the planning approach needs to estimate the market mediation costs. These are the costs that arise from mismatches between supply and demand. For example, shortages cause loss of contribution from sales — one type of market mediation cost. Overstocking can lead to product markdowns — another such cost. 

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