Root Causes for Cost

What does SCM demand of the art and science of cost management that doesn t already exist The first, and most obvious change, is that cost reduction in SCM has moved beyond the single department or company. It s no longer good business to limit oneself to one s own company for cost-saving opportunities. It is also, in all probability, relatively ineffective. Models like DaimlerChrysler s Extended Enterprise (Chapter 20) will become more common. 

Usually, the cost in one company is influenced as much by others in the supply chain as it is by its own operations. Crispin Vincenti-Brown of The Bourton Group represents the situation well when he states cost is a consequence. In other words, look at costs as a signal of a root cause, not a root cause in themselves. When it comes to costs in the supply chain, ask why several times. That process leads to one of several root causes that stand in the way of controlling or reducing supply chain costs. 

Our experience shows that root causes for excessive costs likely lie in one of the five categories described in the following sections. Subsequent chapters will address each. 

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