Total supply chain cost
Measurement of the supply chain performance indicators begins at a functional level which does not necessary affect the formation of supply chain. Many organizations or business entities continue to measure old performance indicators as they try to implement new initiatives for better performance. The supply chain performance indicators measure effectiveness of the adopted function and how the functions are coordinated. Total supply chain cost is one measure of performance in suppliers determined by many organizations. This is defined as the fixed and operational costs which are associated with making, delivering, sourcing, and planning of supply chain process.
Certain processes or costs are considered in supply chain such as material acquisition, information technology costs, order management, carrying of inventory and financial planning. All these are major considerations which make the supply chain complete. Total supply chain costs vary greatly depending on the products being manufactured. Business entities and organizations work hard to cut down supply chain costs with a view of minimizing costs for higher profits. Consequently, all companies fail to handle the problem of supply chain cost management hence making the whole situation difficult (Boyson, Corsi, 2004). This being the case, cost savings becomes a problem which leads to increased costs to other areas which are not easy to control.
Development of total supply chain cost has proved to be difficult for managers in organizations and business entities. There are certain provisions in support of difficulties experienced by top ranking officials especially in the finance department. Senior executives in organizations tend to manage their main supply chain costs through optimization of individual contracts and placement of large purchase orders. The efforts applied by strategic manager’s aim at achieving annual cost reduction benefits which is a long-term goal.
The annualized cost benefits reflect progress against the expected costs of goods sold and other accounting measures. In this case, the senior officials fail to manage total costs which clearly indicates the performance of any given business entity. It becomes difficult to develop a model which aims at management of total supply chain costs. Through optimization of specific cost areas, managers fail to meet total costs which are components of supply chain. Total costs are deducted from total revenues to establish the real profits of the business entity (Boyson, Corsi, 2004). Developing a model that establishes total costs is the most difficult part in development of an efficient supply chain. Cutting down of costs within an organization is the most complicated issue as there are different categories of costs that need to be addressed.
Companies risk incurring high costs of trade compliance, excess inventory, costly remedies for regulatory purposes and patent risks. Launching of the best model to cut down costs in supply chain makes a company to move away from cost reduction efforts. This makes it hard for managers in organizations fail to achieve the best performance. Cost reduction efforts provide a challenge to mangers in organizations because of their complexity nature. The supply chain constitutes of many channels which should be incorporated to enable the product reach the final consumer successfully. The components of the supply chain are not easy to eliminate as they serve critical duty in supplies performance (Boyson, Corsi, 2004). In addition, company managers place large purchase orders in anticipation of higher profits without considering supply chain costs. The process of receiving supplies promotes cost drivers making it hard to develop an efficient supply chain performer.
Boyson, S & Corsi, T. (2004). In Real Time: Managing the New Supply Chain. Mahwah, NJ: Praeger