Total supply chain costs

Total supply chain cost is the sum of inventory, transport, warehousing, and routing costs. This cost is affected by the structure of the chain, capacity of transportation, required coordination between locations for managing consistent operation, and competitiveness of the mode used, which will affect costs and the competitiveness of the business environment, thereby affecting the desired service required. 

Transport cost per unit time Across each shipping lane, suppose the capacity of transport is C. Let the amount shipped during each delivery be Q. To be feasible, we need to ensure that Q C. Assume the demand that generates flows on this lane is D per unit time. 

Then to satisfy the demand rate, deliveries must be received every 

Notice that in the absence of any other costs, it is optimal to ship at full mode capacity. 

Cycle stock at demand points When demand points receive delivery, the quantity delivered is Q, described earlier. This delivered quantity may be greater than the demand each period. If so, the demand location carries cycle stock, which is the average inventory across successive deliveries. 

---

Directly or indirectly, it can influence as much as approximately 20 percent of total costs1 , and a 20 to 30 percent reduction of total supply chain costs can be tremendous for companies that, in some cases, are operating on profit margins of around five percent. 

For shippers and transportation providers, an important metric is the total supply chain cost of transportation transactions. This total supply chain cost includes the effect on both transport costs and associated inventory costs. In addition, measures of performance include delivery lead time, percent on-time delivery or delivery within time windows, and schedule flexibility to accommodate shipment reschedules. Given the large volume of shipments that occur on dedicated contract trucking, there is scope for use of information, coordination agreements, and associated capadty commitments to improve performance across a supply chain. Competing carriers sell bundled routes to minimize shipper costs. 

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 ... 

Total Supply Chain Costs and the Impact of Transportation Mode... 

Consider a retailer in location B who purchases product from a supplier in location A. Customer demand at location B is satisfied from stock at a warehouse at B. The retailer takes possession of goods at A and arranges transport, manages inventories and order placement, and so on. The retailer can choose any mode of transport to get product from A to B. How should the retailer take account of total supply chain costs in making this decision ... 

Total Supply Chain Costs Using the Existing Rail Cation... 

If Fixit were to use rail to ship product from Seattle to Pittsburgh, what would be the impact on total supply chain costs ... 

In particular, consider an alternate proposal for the rail option, whereby the trains travel at a lower average lead time that is less variable. Since transport cost per unit of train shipments is low, these lower average lead time and less variability could reduce both the in-transit inventory holding costs to ship by rail and the associated safety stock. We examine next the impact of these changes on the total supply chain cost experienced by the shipper. 

A study ([9]) described General Motors (GM) as carrying over 7.4 billion in inventory and incurring 4.1 billion in freight costs in 1984. The questions the study explores are the following How could this total supply chain cost be decreased Could the approach be used by decision makers throughout the GM system to impact supply chain costs and thus improve performance ... 

Notice that minimizing transport costs is equivalent to using a full truck-load direct shipment system. The next steps will provide details of the total supply chain costs for this mode of operation. 

Thus the shipment sizes and the associated total supply chain costs for Optima can be computed as follows ... 

Like a snake swallowing its dinner, companies are still digesting the myriad of technologies acquired in this period. The average company now has more than 150 distinctly different supply chain technologies. For example, only 27 percent of Fortune 1000 companies can easily measure total supply chain costs. 

Build strong financial supply chain processes to know total supply chain costs. Help the internal organizations within supply make trade-offs to reduce total costs, not optimize the costs within the silo. 

Standard metrics are reviewed, discussed and cover customer service, forecast accuracy (for push volume), demand error (for pull volume), working capital, total supply chain costs. 

Total supply chain cost is not clear measured and tracked, only functional costs. 

Same as in level 1, but in addition there is an attempt to increase overall supply chain efficiency through integration of different functional areas, in order to minimize total supply chain cost, instead of isolated functional area optimization. 

---