CSCMP Explores Supply Chain Costing Book Summary PDF

CSCMP
The Worlds Leading Source for the Supply Chain Profession.
EXPLORES...
V o l u m e
S i x
2 0 0 9
S p e c i a l
Iss u e
Supply
Chain
Costing
Supply chain managers recognize that the next frontier

in supply chain cost management lies in the portions
of the supply chain beyond
their direct control. These
executives have long understood that many of their
costs and business processes
are driven by the behavior
and practices of their trading partners. Yet cost information is rarely exchanged
due to the perceived sensitivity of financial data and
concerns about releasing
proprietary information.
Terrance L. Pohlen, PhD, CTL

University of North Texas
Thomas P. Klammer, PhD
University of North Texas
Gary Cokins, CPIM
SAS
This document is available from our site and provided for your personal use only and may not be retransmitted or redistributed without written permission from the
Council of Supply Chain Management Professionals (CSCMP). You may not upload any of this site's material to any public server, online service, network, or bulletin board
without prior written permission from CSCMP.
2009 Council of Supply Chain

Management Professionals
To submit a topic or suggest an author

for CSCMP Explores, please contact
the Research Strategies Committee via
e-mail at cscmpresearch@cscmp.org
CSCMP
Ta b l e o f C o n t e n ts
executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
EXPLORES...
CSCMP Explores
is published by the
Council of Supply Chain
Management Professionals
333 East Butterfield Road, Suite 140
Lombard, IL 60148-5617 USA
Phone: +1 630.574.0985
Fax: +1 630.574.0989
Web Site: cscmp.org
supply chain costing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Editor: Jessica E. DAmico

Direct Line: +1 630.645.3460
E-Mail: jdamico@cscmp.org
Need for supply chain costing capability . . . . . . . . . . . . . . . . . . . . . . . 3
supporting research. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
implementing supply chain costing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Step 1: Develop a Foundation for Effective Supply Chain Costing . . . . . . . . 8
Step 2: An Appropriate Structure for Capturing Costs and Supporting

Decision Making . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Step 3: Selecting the Appropriate Tools to Support Information
Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Value Chain Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Customer Profitability Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Tools Employed for Cost Reduction. . . . . . . . . . . . . . . . . . . . . . . 11
Supply Chain Costing Tools for Planning. . . . . . . . . . . . . . . . . . . 12
Tony Barone
Step 4: Linking Cost Information to Performance Measurement and

Value Creation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
John Dischinger
Step 5: Employ Strategies for Overcoming the Challenges Posed

by Supply Chain Costing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2008-2009 CSCMP Research

Strategies Committee
Susan Oaks, Chair
Vice President
A.T. Kearney
Director Global Logistics Strategy

Pfizer, Inc.
Program Director, Global Integrated Supply
Chain
IBM
Kathryn (Kay) Dobie
School Of Business And Economics

North Carolina A&T University
Brent Edmisten
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ENDNOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Director Strategic Sourcing & Mfg Strategy

Cessna Aircraft Company
Table of Figures
Martino Fernandes
Thomas J. Goldsby
Figure 2: visibility of cost information provided by supply

chain costing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Supply Chain Technology Consultant

Dow Chemical Company
Associate Professor Supply Chain
Management
University of Kentucky
Eric Peltz
Director Logistics Program, Army Research

Division
RAND Corporation
Explores... provides todays supply

chain professional a good way to
keep up with the latest trends and
information that affect your profession, when you are short on time.
Each issue is written by a renowned
thought leader and provides indepth coverage of an important
supply chain topic in an easy to
read and convenient publication.
2
Figure 1: key findings from supply chain costing research. . . . . . 4
Figure 3: comparison of traditional and supply chain costing . . . 7
Figure 4: dimensions of supply chain cost information. . . . . . . . . . 7
Figure 5: the process or journey for implementing supply

chain costing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Figure 6: how costs are consumed within the supply chain. . . . . 10
Figure 7: supply chain costing tools employed by research

firms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
figure 8: challenges to implementing supply chain costing. . . . 14
figure 9: strategies for overcoming the challenges confronting

firms implementing supply chain costing. . . . . . . . . . . . . . 14
executive
summary
This issue of CSCMP Explores provides a
framework for gaining greater visibility, understanding, and control over supply chain costs.
The framework is part of a handbook, The
Handbook of Supply Chain Costing, published
in 2009. The supply chain costing framework is
based on the case study findings from over 20
firms recognized as supply chain costing leaders.
Executives require a much broader view of costs
than is currently provided by their firms cost
management systems. Supply chain managers
need to improve their internal cost information and extend their line of sight to include
their trading partners costsboth upstream
and downstream. Without this information, supply chain costs cannot be effectively managed.
Many of these costs are driven by the business
practices of trading partners. Cost visibility and
inter-firm cost management can reveal new and
potentially greater opportunities for cost reduction than can be achieved by a single firm.
Although most firms continue to rely on their
traditional, inward-looking cost systems, some
firms have begun to extend their cost visibility to include major segments of their external supply chains. These firms have adopted
similar approaches and encountered similar
challenges along the way. However, the costing techniques and strategies employed to
overcome these challenges differ based on the
firms position in the supply chain, strategic
objectives, and the sophistication and level of
cost knowledge of their trading partners.
The framework, comprising a series of steps,
recognizes that every supply chain poses unique
costing requirements and challenges. The first
two steps build the foundation for supply chain
costing and address issues common to all supply chains and costing efforts. Supply chain
professionals must tailor the remaining steps
to their circumstances and costing needs. The
information contained in this Explores and
in The Handbook of Supply Chain Costing can
assist them in their implementation efforts.
Need For Supply Chain Costing Capability

Cost visibility across a supply chain can open new opportunities to drive cost
reductions and higher performance; however, few firms are positioned to take
advantage of these opportunities. Many of the firms internal costs are driven
by external trading partners behavior and business practices. Improved cost
visibilityboth within and across firmswould enable executives to better
understand how their relationships with key customers or suppliers drive costs
throughout the supply chain. They can take advantage of this cost information
to make more effective cost trade-offs and to optimize their firms network of
trading partners.
Despite the importance of supply chain costs, few executives possess the ability to effectively manage these costs. They frequently lack cost information
regarding their firms internal processes; the activities comprising these processes; or the cost to serve different customers, marketing channels, or supply
chains. Executives have even less visibility over their trading partners costs or
the factors influencing these external costs. Executives that can expand their
cost visibility over internal and external costs have the potential to take their
supply chain to a much higher plateau of value creation.
Supply chain professionals are operating in a dynamic business environment.
The requirements of end-user demand and the way organizations function
and interact with their trading partners have been altered by factors such as
increased globalization, product and service variety expansion, growing user
requests, rapidly changing technology, fluctuating fuel prices, and sustainability requirements. Measuring and managing existing and prospective supply
chain costs is essential for sustaining profitability and remaining competitive in
this increasingly complex environment.
Supply chain costing in this dynamic environment poses a significant management dilemma. Executives require targeted, precise cost information by product, customer, or supply chain that current cost systems in use in most firms
are unable to provide. Traditional cost approaches provide detailed information regarding labor, material, freight, or other natural accounts but fail to
provide the most critical information needed by management. For example,
managers seeking to improve a supply chain process, such as order fulfillment,
need to know the total cost of the process, the cost of the individual activities
performed, and how costs will change in response to process changes. This
type of information is not typically available within most existing cost systems.
Despite the importance of supply chain costs, the exchange and management
of cost information across organizational boundaries remains a largely unexplored opportunity.
Supporting Research
More than 20 firms participated in the research behind The Handbook of Supply Chain Costing. These firms, representing a wide range
of industries, provided extensive insight and examples related to implementing supply chain costing. The companies boast supply chain
executives who place a high priority on cost management and control. The industries represented by these firms include consumer goods,
food products, pharmaceuticals, automotive, and aviation. The firms selected for the research included those recognized as leaders in
supply chain management, cost management and control, and trade partner collaboration. Suppliers and customers of these firms were
also included to better understand the exchange of cost information within these supply chains. Information obtained from an exhaustive
analysis and review of previous logistics and supply chain costing studies is incorporated throughout the Handbook.
The research found that visibility and management of costs across trading partners offers tremendous potential for value creation within
the supply chain. However, few firms have cost visibility outside their firms, and where any visibility does exist, it is very limited and
does not produce the transparency required to achieve the full potential afforded by supply chain management. Figure 1 summarizes the
key findings obtained during this research.
Figure 1: key findings from supply chain costing research

A common definition of supply chain management is missing
Costing is considered an essential supply chain competency
The level of trust and dependency affect the exchange of cost information
Limited focus is on the suppliers indirect costs
Management perception of cost is influenced by the information provided
Standard cost systems are being adapted to reflect supply chain complexity
Cost estimation models are used to overcome trading partners reluctance to
exchange cost information
Cost information requirements vary by position within the supply chain
Very limited two-way sharing of cost information exists
Supply chain costing increases the complexity of cost systems
Supply chain costing includes a wide range of costing tools employed to support
supply chain management
Firms are at multiple steps along the journey toward supply chain costing
A key finding was that the adoption of a supply chain management process view requires a different perspective regarding cost management than what exists in most firms. A supply chain perspective shifts the focus on determining and analyzing costs from a single firm to
a focus on the costs incurred by all trading partners in delivering the final product or service to the end customer.
Only those firms with a strong emphasis on cost management featured an explicit supply chain costing focus. Senior executives in these
firms considered cost knowledge as a source of competitive advantage. An understanding of how decisions and performance drove costs
within and across firms was essential to managing their operations. They also believed this knowledge enabled them to obtain significant
and sustainable cost reductions for their firm. These managers collected extensive cost information on all facets of their firms operations.
They employed a range of sophisticated tools to capture, model, and simulate the effect of process changes on total cost. Costing and the
use of cost information had become an integral part of their culture.
None of the companies participating in the research had fully implemented supply chain costingvisibility and management of costs
spanned their entire supply chain. The participating companies had achieved varying levels of proficiency in obtaining and using supply
chain cost information. However, management within all the firms recognized the need to obtain cost information regarding their trading
partners as essential for eliminating inefficiency and gaining greater control over supply chain costs and performance.
4
Supply Chain Costing

Supply chain managers recognize that the next frontier in
supply chain cost management lies in the portions of the supply chain beyond their direct control. These executives have
long understood that many of their costs and business processes are driven by the behavior and practices of their trading
partners. As a result, firms are attempting to exert greater
influence over their trading partners performance of activities
and achieve better outcomes from process elements outside
their direct control or ownership. However, firms typically
lack the cost and performance intelligence necessary to make
informed business decisions that affect the supply chain.
Supply chain managers have usually tackled this situation by
exchanging operational performance data. Cost information
is rarely exchanged due to the perceived sensitivity of financial data and concerns about releasing proprietary information. Existing cost management systems frequently preclude
the exchange of the needed cost information. Traditional,
general ledger based cost systems do not possess the capability to provide the type of cost information needed for
managing products, services, and information flows through
complex supply chains.
The adoption of supply chain management and a process
view of cost result in a different perspective on cost management. The focus shifts from a single firms costs to the costs
incurred by the entire supply chain in providing the final
product or service to the end customer. To improve the value
proposition presented to the end user, supply chain managers must look across the entire supply chain for new ways to
enhance product or service quality while reducing costs.
CSCMP defines supply chain management as:

Supply chain management encompasses the planning and
management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers,
intermediaries, third party service providers, and customers.
In essence, supply chain management integrates supply and
demand management within and across companies.
This definition of supply chain management suggests that a broad
encompassing view is required to support effective supply chain
cost management. Cost informationfrom multiple functions
within the firm and across multiple trading partners spanning the
supply chainis necessary for the effective collection, management, and control of costs.
The marketplace cost to the end user is the sum of the activity
costs performed and profits taken by all of the trading partners.
Supply chain managers require the visibility obtained through
supply chain costing to determine what causes costs from dirt-todirt to have the ability to control the final cost experienced by the
end user (Figure 2).
Figure 2: visibility of costing information provided by supply

chain costing
Tier 3
Supplier
Tier 2
Supplier
Resources
Resources
Products
Customers
Resources
Customers
Product Development Process
Customers
Resources
Activities
Products
Assembler/
Manufacturer
Activities
Activities
Products
Tier 1
Supplier
Resources
Activities
Products
Customers
Resources
Activities
Activities
Products
Customers
Products
Customers
Manufacturing Flow Process

Adapted from Cokins, Gary (2001), Activity-Based Cost Management: An Executives Guide, New York, NY: John Wiley & Sons, Inc., pp.169.
Copyright 2009, Gary Cokins. Used with permission.
Findings from the research clearly demonstrated that traditional general ledger costing systems are of limited value in providing
the types of cost information needed to support supply chain decision making. The focus of traditional costing systems is functional, designed to support external financial reporting, and strongly emphasizes product costing. These systems are internally
focused, based on transactions with customers and suppliers as well as internal transactions, are historical in nature, and do not
measure or report prospective costs. Despite these shortcomings, most companies continue to rely on traditional systems as their
primary source of cost information. Supply chain costing differs from traditional costing in several important aspects, including:
objectives, focus, cost objectives, linkages, precision, scope, and visibility (Figure 3).
Supply chain management, by its nature, is extremely complex. Firms operate in multiple supply chains with different strategies,
trading partners, and end users. This complexity makes supply chain cost management very challenging. The nature of supply
chain decision making requires a shift from traditional costing to supply chain costing in order to support the capturing and
analyzing of cost data across multiple firms. Supply chain costing reflects this complexity by capturing costs and cost drivers at
the activity level and by providing the capability to portray costs along the cost, product, and relationship dimensions (Figure 4).
Cost information needs to reflect this complexity to adequately support supply chain decision making. The cost dimension
addresses not only the direct and indirect costs within the firm but expands these categories to include the transaction costs with
immediate trading partners and the process costs spanning the entire supply chain. The product dimension captures costs driven
by product characteristics throughout its entire life-cyclefrom research and design to final disposition. The relationship dimension classifies costs based on external drivers ranging from trading partners behavior and business practices to the different supply chains and overall network in which the firm participates. These three dimensions act as a kaleidoscope because the same
data can be viewed in many different ways. Cost information can be re-portrayed (assigned) as needed by product, process, or
trading partner/channel to support management decision making. Within the supply chain, all costs need to be identified to be
effectively analyzed and controlled.1 These dimensions encompass a wider array of costs than incorporated in traditional cost
systems.
6
Figure 3: Comparison of traditional and supply chain costing

Traditional costing
Supply chain costing
Objective
To support reporting of financial data and results
To support supply chain decision making
Focus
Allocation of costs to responsibility (budget) centers

Cost control through budget management
Determining the costs of boundary spanning processes

Cost control by managing trade-offs across supply chain
Cost objects
Functions
Products
Departments
Cost drivers
Simple volume measures
Multiple drivers
Recognize complexity
Strategic decisions
Linkages
Ignored
Cost allocations used to reflect interdependencies
Recognized and effect explicitly considered
Precision
High apparent precision
Low perceived precision

Greater management insight
Scope
Internal
Internal and external value chain
Visibility
Limited regarding factors driving costs
Identifies key cost drivers in the supply chain and how

process linkages affect cost and performance
Activities and supply chain processes

Customers
Suppliers
Distribution channels
Supply chains
Products
Table adapted to combine research findings with comparison previously developed by Partridge, Mike J. and Perren, Lew (1994), Cost Analysis
of the Value Chain: Another Role for Strategic Management Accounting, Management Accounting, Vol. 72, No. 7 (July/August), pp. 22.
Figure 4: dimensions of supply chain cost information

Relationship
Dimension
Network design
and optimization
Supply chain
Production
Dimension
Interface optimization
Life-cycle
Production
Trading partner
Product design
s
es
oc
Pr
on
cti
T
co ran
sts sa
ct
ire
Ind
Di
re
ct
Product
Cost
Dimension
Adaptation expands on framework contained in Seuring, Stefan (2002), Supply Chain Costing, in Seuring, Stefan and Maria Goldbach, editors,
Cost
Management
Supply
Chains,
Germany:
pp. 24.orUsed
with permission
ofpermission
the publisher.
This document
is available
from ourinsite
and provided
forHeidelberg,
your personal use
only andPhysica-Verlag,
may not be retransmitted
redistributed
without written
from the
Implementing Supply Chain Costing

Figure 5: The process or journey for
implementing supply chain costing
Develop a foundation for effective supply chain costing
Create an appropriate structure for capturing costs and supporting

management decision making.
Select the appropriate costing tools to support information

requirements
Link cost information to performance measurement

and value creation
Iterate within the firm

Iterate within the supply chain
Those firms already on their supply chain

costing journey have attempted to capture
expense information and calculate costs
from the end user to the ultimate source
of supply. The resulting cost knowledge
allows these supply chain professionals
to report the magnitude and types of supply chain costs, get senior managements
attention, and focus on key cost drivers
across the supply chain. Their initial successes justified continuing the journey to
obtain more complete cost information
regarding the supply chains in which
they operate. By adopting the approach
developed during the research, supply
chain managers in other firms can obtain
similar benefits. The process, or journey,
for implementing supply chain costing
consists of five steps (see Figure 5). The
steps are iterative within the firm and the
supply chain.
Employ strategies for overcoming the challenges posed by

supply chain costing
Step 1: Develop a Foundation for Effective Supply Chain Costing

First, executives need to ensure an appropriate foundation is in place to support supply chain costing. Essential elements of this foundation include a shared vision of supply chain management and determining what cost information is required to support management
decision making. The structure of the cost system should be based on the firms strategy, production methods, and operating environment.
Supply chain costing requires adopting a perspective that emphasizes the need to capture all of the costs incurred in providing a product
or service to the end user. Many factors influence supply chain costs. Understanding these determinate factors is essential for managing
supply chain costs and selecting appropriate costing systems. Every organization and decision maker is positioned within a supply chain
structure, is influenced by dynamic environmental factors, makes strategic and operational product and service choices, and selects or
utilizes production processes. Together these interrelated factors influence the type of cost information managers need to make decisions
that affect supply chain costs.
Supply chain costs include selling, administrative, and product costs. Therefore there is a need for focus on both direct and indirect
costs. Without visibility to overall costs, it is easy to overlook and thus fail to monitor and manage certain types of cost. Executives in
leading firms recognized the importance of documenting the magnitude of supply chain costs. Quantifying the size of the supply chain
costs an organization (or supply chain process) incurs is one approach to selling skeptical managers on the importance of measuring and
managing these costs.
An understanding of how the firm is positioned in the supply chain and of the type of decision being made (operational, tactical, or
strategic) helps decision makers evaluate what cost information they need and what costs the decision will affect. Multiple environmental factors impact supply chain costs regardless of an organizations size, scope, suppliers, and customers. Strategic and production
decisions that affect current and future supply chain costs are made at many levels. The firms position in the supply chain directly influences which supply chain costs can be effectively managed with and without cost sharing across the value chain. Its strategic positioning
choices related to quality, cost, and time help draw distinctions from other firms.
8
Step 2: An Appropriate Structure for Capturing Costs and Supporting Decision

Making
The second journey step focuses on creating an appropriate structure for capturing costs and supporting management decision
making. Tremendous complexity exists in most supply chains.
Supply chain costing needs to capture costs in a manner that
enables managers to view and portray costs in many different
ways. This step gives careful consideration to the classification
and assignment of costs.
Alternative cost classifications permit the isolation of costs by
product, customer, or supply chain. This information supports the
application of different supply chain costing tools (such as customer profitability analysis and target costing) as well as linking
supply chain costs to performance and value creation through the
use of economic value-added or balanced scorecard models.
The research participants emphasized that as their firms attempted to better understand supply chain costs, the need for multiple
cost classifications increased. For example, one firm used multiple
classifications to better understand key cost drivers. Costs were
classified by processes (value streams) to help determine how
different functions affected total process costs or the cost per
output (outcome). The classification of costs by product or family
group (product costing and profitability) provided greater insight
regarding how product differences affected activity and process
costs in the firm. Product classifications enabled the firm to more
accurately assign costs by strategic business unit (SBU), and support SBU and the division of product profitability. Classification
of costs by customer occurred where customer differences had a
significant effect on cost. Those differences often included product or packaging customization, order placement, cycle time, and
delivery.
Activities drive most supply chain process costs and thus managing activities is essential for supply chain cost management.
Historically, most cost measurement systems focused on cost
objects that were relevant for external reporting but not for
internal decision making. There is now a growing emphasis on
identifying activities as the cost objects of interest. This activity
focus makes it easier to obtain the type of cost information that
is more useful for managing supply chain processes.
Supply chain costing uses multiple cost drivers to deal with the
complexity of most supply chains. Decision support hinges on
the quality of the cost information available for key tasks and
processes. This cost is based on the resources consumed.2 Figure
6 provides an illustration of how this data may be obtained.
Supply chain decision makers need accurate and detailed information to analyze performance within a single firm or spanning
multiple firms. This information cannot be obtained without the
use of multiple cost drivers with the ability to trace both direct
and indirect costs.
Since many supply chain functions are aggregated under sales,
general, and administrative (SG&A) or other indirect categories,
the use of cost drivers for assigning indirect costs is especially
important. Without cost information and what drives these costs
at the activity level, supply chain managers have no visibility
regarding costs except at a very aggregate and unmanageable
level.
Many firms are just beginning to explore cost classification by

distribution channel or supply chain. These firms are attempting
to better understand how external drivers and business practices
affect internal costs, as well as how the firm affects the costs of
other trading partners. Several executives noted that the most
apparent need for this classification scheme occurs when the
firm operates in distinct supply chains that use very different
business practices and thus generate large cost differences. For
example, one of the manufacturers participating in this study
used multiple channels and sold to the end user over the Internet
through distributors, large retailer distribution centers, and/or
with direct store delivery (DSD). The costs for each channel differed markedly.
In many supply chains, indirect costs represent a significant
portion of total costs. The classification of indirect costs must
support an appropriate assignment to activities and cost objects
(products, customers, channels, or supply chains). Inaccurate or
inappropriate assignments send misleading signals to management. Accurate assignments provide greater clarity regarding
exactly what is driving supply chain costs and where to concentrate managements focus. Cost assignments drive behavior, and
managers need to ensure that the techniques and cost drivers they
use drive the right behavior and send the right signals to upper
management and the firms trading partners.
Figure 6: how costs are consumed within the supply chain
SALARY & FRINGE

BENEFITS
CAPITAL
(equip related)
DIRECT MATERIAL
NON-WAGE RELATED
(e.g., supplies)
SALARY & FRINGE

BENEFITS
CAPITAL
(equip related)
DIRECT MATERIAL
SALARY & FRINGE

BENEFITS
NON-WAGE RELATED
(e.g., supplies)
CAPITAL
(equip related)
DIRECT MATERIAL
NON-WAGE RELATED
(e.g., supplies)
ACTIVITY EXAMPLES
MACHINES
MAKE PRODUCT,
MOVE PRODUCT,
SET-UPS
# POS
# Receipts
SUPPLIER
SUSTAINING
# Ponds
# Gallons
# Meters
SALES CALLS
ORDER HANDLING
FREIGHT
# Machine Hours
# Material Moves
# Set-Ups
Suppliers
Suppliers
BUSINESS
SUSTATINING
RELATED
ARBITRARY (for full absorption)
UNIT &
BATCH
LEVEL
# Advertisements
BRAND
SUSTAINING
PRODUCT/SERVICE
LINE SUSTAINING
UNIT &
BATCH
LEVEL
SUPPLIERRELATED
MACHINES
MAKE PRODUCT,
MOVE PRODUCT,
SET-UPS
SUPPLIER
SUSTAINING
# Ponds
# Gallons
# Meters
# Machine Hours
# Material Moves
# Set-Ups
# Advertisements
PRODUCT/SERVICE
LINE SUSTAINING
UNIT &
BATCH
LEVEL
SUPPLIERRELATED
CUSTOMER-RELATED
UNIT &
BATCH
LEVEL
SALES CALLS
ORDER HANDLING
FREIGHT
# Sales Calls
# Orders
# Shipments
# Machine Hours
# Material Moves
# Set-Ups
# Ponds
# Gallons
# Meters
UNIT &
BATCH
LEVEL
BUSINESS
SUSTATINING
RELATED
# Advertisements
BRAND
SUSTAINING
PRODUCT/SERVICE
LINE SUSTAINING
UNIT &
BATCH
LEVEL
SUPPLIERRELATED
# Shows
# Advertisements
# Shows
# Advertisements
Product/SKUs
CUSTOMER
SUSTAINING
PRODUCT &
SERVICE LINE
RELATED
SUPPLIER
SUSTAINING
Suppliers
Product/SKUs
CUSTOMER
SUSTAINING
MACHINES
MAKE PRODUCT,
MOVE PRODUCT,
SET-UPS
# POS
# Receipts
BUSINESS
SUSTATINING
RELATED
TRADE SHOWS
IMAGE ADVERTISING
BRAND/PRODUCT
RELATED WORK
BRAND/PRODUCT
ADVERTISING
FACILITIES COSTS
PURCHASES
RECEIPTS
# Sales Calls
# Orders
# Shipments
BRAND
SUSTAINING
# Shows
# Advertisements
RELATIONSHIP
MANAGEMENT
SALES CALLS
ORDER HANDLING
FREIGHT
UNIT &
BATCH
LEVEL
Suppliers
Suppliers
Product/SKUs
PRODUCT &
SERVICE LINE
RELATED
PURCHASES
RECEIPTS
# POS
# Receipts
# Sales Calls
# Orders
# Shipments
TRADE SHOWS
IMAGE ADVERTISING
BRAND/PRODUCT
RELATED WORK
BRAND/PRODUCT
ADVERTISING
FACILITIES COSTS
UNIT &
BATCH
LEVEL
CUSTOMER-RELATED
PURCHASES
RECEIPTS
RELATIONSHIP
MANAGEMENT
TRADE SHOWS
IMAGE ADVERTISING
BRAND/PRODUCT
RELATED WORK
BRAND/PRODUCT
ADVERTISING
FACILITIES COSTS
RELATIONSHIP
MANAGEMENT
CUSTOMER
SUSTAINING
PRODUCT &
SERVICE LINE
RELATED
UNIT &
BATCH
LEVEL
Customers
FINAL COSTS OBJECTS
Figure adapted from Cokins, Gary (2001), Activity-Based Cost Management An Executives Guide: New York: NY: John Wiley & Sons, pp. 53. Used with permission.
Supply chain cost leaders were working to improve their understanding of activities; how activities are performed; the resources they use;
how they are coordinated across the organization; and how these activities affect the cost, quality, and timeliness of service to customers.
There is a growing realization that it is essential to manage activities. Understanding and managing costing activities is very different than
implementing a full blown activity-based costing (ABC) system.
Activity-based management (ABM) was used to identify the activities that occur, learn why they take place, and document how they are
accomplished. The purpose of analyzing costing activities is to improve work processes. Adopting ABM principles helps supply chain
managers develop a better understanding of work processes. Firms who participated in the research noted that the analysis required the
identification of the activities that occur, learning how they are performed, and documenting the ways they link within and across organizations.
Step 3: Selecting the Appropriate Tools to Support Information Requirements

Firms use a variety of costing methods and tools to increase cost visibility and to manage internal and external costs. As a result, supply
chain costing encompasses a wide variety of tools and software technologies (Figure 7). The research found that the most appropriate
costing method often depends on the management question being asked or the position of the firm in the supply chain. Some costing
techniques work better than others in different circumstances. Certain tools are particularly useful for improving the supply chain cost
structure while others are more valuable for cost planning or as part of a strategic analysis of supply chain costs. Some tools work well
in mass production environments while others better support lean production methods.
10
Figure 7: Supply chain costing tools employed by researched firms

Activity-based costing (ABC)
Landed costing
Balanced scorecard (BSC)
Life-cycle costing
Cost estimation
Open books costing
Cost-to-serve
Standard costing
Customer profitability analysis (CPA)
Target costing
Economic value added (EVA)
Value chain analysis
Kaizen costing
Value Chain Analysis
Customer Profitability Analysis
Value chain analysis emerged as a uniquely important tool for

supply chain costing. Value chain analysis is a cost management
process that analyzes costs (such as supply chain costs) across
linked enterprises. This analysis helps to identify where the
majority of costs are in a supply chain process, and thus, where
to focus cost management efforts, document why actions of
upstream supply chain organizations influence downstream supply chain costs, and evaluate where the most or least profitable
segments of the supply chain processes arefacilitating appropriate cost management strategies.
The research identified customer profitability analysis as an

important tool within the umbrella of supply chain costing.
Upstream firms attempting to extend their visibility of supply
chain costs generally were most interested in determining the
costs to serve different customers or market segments. Customer
profitability analysis is a tool that helps measure both the revenues generated and the resources used to serve specific customers, groups of customers, or distribution channels. Because of the
product and service variety that permeates todays business environment, not all customers are equally profitable. The analysis
often shows that a small percentage of customers generate a large
proportion of a firms profits and that many customers are actually unprofitable.
Both internal and extended value chains exist for an organization

and for every supply chain process. Identifying and mapping
these value chains helps supply chain executives understand how
their organization and part of the organization is positioned
within the value chain. Completing a value chain analysis helps
decision makers better estimate costs within the value chain and
improves their understanding of linkages and interrelationships
that affect costs and profits. This analysis can improve coordination, reduce waste, speed up delivery, avoid delays, and reduce
errors.
Completing a customer profitability analysis requires an understanding of how and why there are differences in the support
costs associated with serving a customer, group of customers, or
a particular distribution channel. By using this information, supply chain managers can design the right product mix and supply
chain strategy for various types of customers. Currently, customer
driven costs are often invisible to decision makers and thus do not
receive adequate management attention. The results of an activity-based customer profitability analysis produce dramatic shifts
from the profitability reported by traditional cost systems.
Tools Employed for Cost Reduction

Four tools that help managers in their cost reduction efforts are standard costing, activity-based costing, landed costs, and Kaizen costing. These tools can expand managements cost visibility outside the firm and over broader segments of the supply chain. These tools help
focus on particular types of costs, stimulate discovery of better ways to measure costs, and encourage discussion and debate about potential changes that can lead to cost reductions. The information these tools provide will often indicate where there is an obvious need for
change even without deeper analysis.
Standard costing. Firms demonstrating the greatest cost knowledge expanded standard costing to incorporate non-manufacturing processes. Their systems include standards for major supply chain processes such as order fulfillment, demand management, customer service,
research and development, and returns management. The ability to capture cost differences by supplier, customer, or distribution channel
facilitated cost-to-serve and customer profitability analyses. Applying standard costing to a wider range of processes has positioned these
firms to better develop, analyze, and control supply chain costs.
The development and maintenance of cost standards created a unique costing competency within firms on the leading edge of supply
chain costing. Management not only knew the cost to perform activities and processes, they also recognized how their trading partners
behavior affected activity performance and costs. Several managers indicated that they had a much better idea of their trading partners
11
costs than their management counterparts in those firms. They attributed this knowledge to the work done in developing their standard
costs and in working to further reduce the time and cost required in performing these activities. They frequently worked with their customers or suppliers to reduce costs across both firms. These managers believed their cost systems and knowledge enabled them to gain a
competitive advantage over their competitors, who lacked this information.
Activity-based costing. The use of an activity-based approach to determine activity and process costs emerged as a consistent theme.
Manufacturing and distribution deal with a broad range of products and stock keeping units (SKUs). Managing this diversity requires a
more complex cost system, particularly since indirect and shared expenses often represent substantial portions of a firms total costs. The
primary value of ABC stems from its capability to more directly assign these costs.
Despite the effort required for implementation, ABC appears well suited for supporting supply chain costing. The use of multiple cost
drivers enables managers to distinguish between the direct and indirect costs and to more accurately determine how product volume or
other changes actually drive costs. Much of the complexity existing in supply chains is driven by the differences in products, customer
requirements, and supplier capabilities. The ability to discern how differences affect costs will require the use of multiple activities.
Landed costing. All of the firms participating in the research performed some form of landed cost analysis to study the costs of their
inbound supply chains. The analyses differed considerably in the level of detail and became considerably more complex further downstream in the supply chain. The landed cost captures the costs of freight and other activities performed to move product from origin to
final destination. Costs included in a landed cost analysis would include freight, quality, receiving, material handling, administration,
technology, and facility costs.
Kaizen costing. Kaizen costing supports continuous improvement and cost reduction for items currently in production and processes presently in use. Internal cost reduction targets are set and then reengineering and cost reduction efforts are employed to determine where
costs can be eliminated. ABC and landed costing are often used in conjunction with a Kaizen costing initiative. Every organization participating in our research was focused on finding ways to reduce their supply chain costs. Kaizen costing is simply a systematic approach
that is useful for achieving this objective.
Supply Chain Costing Tools for Planning

Supply chain processes are affected by the strategic decisions
managers make. It is easiest to manage the costs associated with
a strategic decision before the decision is made because almost
all costs are still variable. A carefully structured set of cost planning tools is an essential element of the supply chain costing tool
kit. 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 built on multiple types
of cost estimation.
Budgeting. The annual budget is the most widely used management accounting planning and control tool. Ideally, the budgeting process requires individuals to focus on what they do (their
work activities) and on what resources (money, time, goods) they
need to complete these activities. The budget is where supply
chain managers make their case for the resources they need. At
its core, these budgets are about resource capacity planningthe
ability to convert and reflect physical operational events into the
language of moneyexpenses and costs.
Executives participating in the research were increasingly
demanding budgets that could be readily adjusted to reflect
changed circumstances. There is growing use of rolling financial
forecasts for shorter intervals where future period assumptions,
especially sales forecasts, become more certain. Knowledge of the
activities that occur, what people do, what resources they use,
and what these resource costs are, are essential elements of supply chain costing. Building budget requests based on this type of
activity knowledge (activity-based budgeting), is almost certain
to result in more realistic supply chain resource requests and
more effective cost management.
cost improvement opportunities, and facilitates making the budget adjustments that are inevitable in a dynamic environment. It
helps managers determine if adequate capacity exists to complete
planned activities and to identify areas where capacity is significantly underutilized.
Target costing. Target costing and variations of target costing are
tools that companies are increasingly using to estimate and manage the cost of a new product or service before it is introduced.
A target cost is an estimate of the amount of cost that can be
incurred while allowing the firm to earn a required profit. The
market price is established first and the required profit margin
subtracted to get the target cost. Target costing includes all types
of costs (production, selling, and administrative), as well as all
life-cycle costs. Product and process design occur concurrently to
maximize cost reduction opportunities and the use of cross-functional teams that include outside entities within the value chain is
essential. Typically, achieving a target cost is not feasible without
creating collaborative relationships with all members of the supply
chain.
A major benefit firms gained from their target costing efforts was
enhanced process understanding and information relevant to the
many, ongoing organizational decisions. Target costing also makes
being a team player and becoming more tolerant of cost ambiguity essential. Both are issues of concern found in the research and
neither of these behavioral changes is easy.
Life-cycle costing. The importance of managing the cost of a service or process over its life is gaining broader acceptance. Firms
have to deal with a rapidly changing environment. Its now commonly accepted that the low bid supplier wins mentality of the
mass production era is no longer appropriate. Leading decision
makersespecially in firms with a cost mentalityrecognize
An activity-based budget focuses on the work required to
that considering all costs and revenues over a products life-cycle
complete a process or activity (such as loading a truck). This
is essential when making investment or procurement decisions that
information helps improve planning, identify areas that offer
This document is available from our site and provided for your personal use only and maywill
not be
retransmittedfuture
or redistributed
written time.
permission from the
influence
costs without
for some
12
Capital investment analysis or capital budgeting, is the process

organizations use to evaluate and select long-term investments
in tangible or intangible assets. It helps answer questions about
whether the return on a proposed purchase of an asset (such as
equipment or a system) is justified. A good capital investment
analysis process helps supply chain managers analyze and plan
when and how to add long-term capacity costs in a manner consistent with the firms long-term strategy. It is particularly useful
in making decisions about whether to outsource supply chain
process elements.
Capital investment decisions are important because they commit
the organization to certain types of cost structures and specific
supply chain processes. Although many large organizations
have detailed procedures in place for making capital investment
decisions, research and interviews show that few firms believe

their capital investment decision process to be world class. Its
no surprise then that most firms are reluctant to benchmark in
the capital investment analysis area. This unwillingness to share
information makes process improvement difficult. This illustrates
a problem that needs to be addressed in many parts of the supply
chain costing journey.
Capacity analysis. Capacity is a measure of the quantity of goods
or services that that an organization, a process, or an individual
resource can produce. Knowledge of whether adequate or excess
capacity exists or will exist after selecting alternativesbased on
life-cycle or capital investment analysisis an important part of
supply chain costing. There are many potential uses for capacity
analysis at the operating, tactical, and strategic level.
Step 4: Linking Cost Information to Performance Measurement and Value Creation

Performance measurement poses several unique challenges for supply chain management due to the breadth and complexity of most
supply chains. Despite the challenges, executives need to understand how the supply chain affects performance within their firm. Supply
chain costing offers the capability to translate supply chain performance into financial performance. Although cost reduction is the focus
of most supply chain costing efforts, effective supply chain management can also create value by increasing sales, gaining additional market share, reducing inventory, or improving asset productivity throughout the supply chain.
Several executives emphasized that supply chain costing must be linked to the performance measurement system and not be implemented
in isolation. By linking to performance measures, managers will have more interest in understanding their costs and what drives organizational cost. The integration of cost and performance information represented a major step forward in cultivating a cost conscious culture
within the firm.
The research found that a strong emphasis on short-term performance measures still exists. Examples emerged of how this emphasis
conflicted with efforts to improve supply chain management. Financial and non-financial measuresthat broaden managements focus
beyond monthly or quarterly results and support strategic supply chain decisionsare essential and will require changes in existing performance measurement systems. However, even when strong incentives to make changes exist, implementation is often a major challenge.
Change is even more problematic if top management is not viewed as walking the talk. When performance measures do not align with
an entitys objectives and strategies, they often drive the wrong type of behavior. Action can be taken to make an individual or functional
area look good in the short run, but there will be negative long-term consequences to the firm.
Nonfinancial performance measuressuch as cycle time, on time delivery, or percent of perfect ordersprovide key indicators regarding the level of service provided to the customer; however, they do not indicate whether the firm or the supply chain have obtained an
adequate return on investment. Supply chain costing can provide the linkage by identifying the activity costs associated with each of the
performance measures. It can identify the activities, resources consumed, and time required to achieve specific levels of customer serviceorder processing, order picking, delivery, inventory, sales, etc. Nonfinancial performance measures can then be translated into costs
affecting the bottom line.
The ability to translate improved process performance into value makes a compelling argument when attempting to persuade trading
partners to align their business practices with supply chain objectives. Executives across the supply chain need to understand how changing business practices will affect non-financial performance (e.g., cycle time, availability, on time delivery or obsolescence) and how aligning their performance will create additional value for their firm. This alignment process requires that managers re-examine the nature of
their supply chain costs and select or modify the tools used to capture cost information in useful ways supporting decision making. As
different costing tools are incorporated into the supply chain cost management process, performance measures need to evolve. Likewise,
as trading partners collaborate and align performance, additional insight will be required regarding how changes in the supply chain are
affecting performance, costs, and value.
The increased cost visibility made available by supply chain costing has far reaching implications for supply chain management. Value
creation will drive strategic decisions regarding the composition and structure of the supply chain. The linking of supply chain strategy to
activity costs and to nonfinancial performance measures will change the companys evaluation of carriers, vendors, and trading partners
while providing a greater degree of influence over changes occurring in the supply chain. Restructuring the supply chain to exploit efficiencies or seize competitive advantages will further emphasize the need for a mechanism capable of equitably allocating cost benefits and
burdens between trading partners.
13
Step 5: Employ Strategies for Overcoming the Challenges Posed by Supply Chain
Costing
Supply chain professionals will need to overcome several major challenges during the journey to supply chain costing. The challenges
encountered by firms during their implementation efforts range from a lack of trust between trading partners to accounting systems that
failed to capture needed information. Although these challenges pose significant obstacles, managers can learn from strategies employed
by firms that have successfully overcome these challenges and made major strides along their journey.
Some challenges are primarily technical and can include failures to define or capture needed information, and an inability to make reasonable cost estimates (Figure 8). Although significant, supply chain managers can apply the costing strategies and tools that are being
successfully used elsewhere to help overcome their own technical challenges. The larger challenge lies in the ability to distribute improved
technical skills throughout the supply chain.
Figure 8: challenges to implementing supply chain costing

Behavioral
Lack of trust
One-way flow or exchange of cost information
Perceptions of an inequitable sharing of benefits and burdens
Technical
Limited cost knowledge
Prevalence of traditional, general ledger cost systems
Limited cost estimation capability
Multiple definitions of cost

The most daunting challenges to improving supply chain costing are behavioral or cultural (Figure 8). These challenges are rooted in
many firms ingrained unwillingness to share sensitive cost information, the fear of an inequitable allocation of the resulting benefits and
burdens, and a basic lack of trust in the behavior of trading partners. These attitudes may exist internally among business segments or
functions, as well as between external trading partners.3 Movement toward achieving cost transparency across trading partners can sometimes be painfully difficult.
Finding ways to overcome the challenges associated with completing the supply chain costing journey remains an elusive objective. Our
research identified several strategies that leaders in the supply chain costing area were currently employing to cut across internal and
external barriers and establish communication and information links across trading partners (Figure 9). These strategies focus on enabling
managers to demonstrate how the exchange of cost information can produce a competitive advantage for the supply chain by eliminating
waste, aligning performance, and leveraging the unique competencies within each of the participating trading partners.
Figure 9: strategies for overcoming the challenges

confronting firms implementing supply chain costing
Developing a cost estimation capability
Leveraging information sharing requirements
Pilot projects as a catalyst for fostering collaboration and trust
Focusing on new trading partners for cost exchange
Implementing a value-based strategy

14
summary
Firms approach supply chain costing in many different ways, use a variety of costing
methods and tools, and are generally aware that there is a great deal that they still need
to learn about supply chain costing. We found that a common definition of supply chain
management and costing does not currently exist among managers and across trading
partners. The lack of a shared vision affects the collection, assignment, and exchange of
cost information within and between firms. Although most firms did not possess good
information on the costs of processes that span the internal and external supply chain,
senior managers in leading-edge firms believed increased cost visibility would improve
their decision making. As a result, these firms have embarked on a journey toward
obtaining greater cost information regarding their supply chains.
Significant opportunities to improve supply chain costing and cost management exist in
most organizations. The Handbook, on which this article is based, provides numerous
illustrations of practices that supply chain managers have used in their efforts to improve
their ability to identify, measure, and use supply chain cost information. Our primary
purpose is to help supply chain managers increase their awareness of supply chain costing
fundamentals and assist them in selecting appropriate costing practices for measuring and
managing supply chain costs.
All of the management teams in the firms that participated in our research recognized the
need for greater cost knowledge, that many costs were driven by the behavior of their
trading partners, and that by managing supply chain costs a competitive advantage could
be obtained. The firms were moving in the same direction toward supply chain costing,
but were at different stages in their level of cost knowledge and tools employed. The steps
they were taking were similar, although the tools employed often differed based on the
problems being addressed or their position in the supply chain. These stages became the
basis for the segments of the supply chain journey described earlier.
Supply chain costing is still in its infancy and firms that move out aggressively towards
their supply chain costing journey right now are at a major advantage. Leading firms have
done a number of things right and its possible to learn from their experiences. Here are
some parting observations for those taking the first steps on their journey to improve supply chain costing.
Supply chain costing requires a major

investment in time and personnelbut
this investment provides a platform
to make the leap to the next plateau
in supply chain management. The
investment for an additional analyst,
software, and the management effort
is a small price to pay compared to
potential cost reductions that can be
achieved.
Cost knowledge within and between
firms is required to truly manage the
supply chain. Operational and surrogate
measures can move the firm only so
far. Trust and dependency are critical in
determining whether cost data will be
exchanged across firms.
Much of the cost data that is needed
may not be as sensitive as managers
currently perceivecost and performance data is usually specific to the
activities, processes, and strategies being
employed by the firm and its trading
partners. The ability of competitors to
exactly replicate these strategies and
business practices, especially when
involving multiple trading partners, is
problematic.
Supply chain costing is a strategic,
competitive weapon that can also be
used to support tactical and operational
decisions once in place. To be effective,
performance measures must be aligned
with supply chain costing.
The low hanging cost reduction fruit has largely been picked. Firms must look for new
opportunities outside the firm. This search will require a broader vision of costs and an
additional level of effort.
Rising energy prices and further globalization will intensify the focus on managing supply chain costs. Supply chain costing will become the platform for major breakthroughs
in supply chain management by helping managers identify the opportunities, determine
the value created, and sell new initiatives
The value of broad cost knowledge is not understood by many managers. There
remains a culture of not looking outside of the firm for opportunities to drive cost
reductions or improve performance. The true value of supply chain management is not
realized due to the inability to capture costs across trading partners.
Supply chain cost management is not as well understood as many believe, especially by
smaller customers and suppliers in many supply chains.
Common definitions of the supply chain and supply chain costing are essential.
Managers must also have a solid understanding of the environment, organizational
strategies, and the types of production processes being used.
Managers need to instill a cost conscious culture in their firms. Costing is, in itself, a
core competency which can yield competitive advantage. Cost information useful for
decision making takes many forms and must focus on both direct and indirect costs.
Supply chain costing is not a single costing technique. It is a broad term that encompasses many different costing techniques for expanding cost visibility across the supply
chain.
Endnotes
1 Seuring, Stefan (2002), Supply Chain Costing,
in Seuring, Stefan and Goldbach, Maria editors,

Cost Management in Supply Chains, Heidelberg,
Germany: Physica-Verlag, pp. 24.
2 McNair, C.J. (1999), Tools and Techniques
for Implementing Integrated Supply Chain

Management, Montvale, NJ: Institute of
Management Accountants.
3 The discussion of the challenges focuses on
relationships with external trading partners

because it is here that management has the
least direct ability to influence these behavioral,
cultural issues and even technical issues.
15
333 East Butterfield Road, Suite 140, Lombard, Illinois 60148-5617 USA
Phone +1 630.574.0985 Fax +1 630.574.0989 cscmp.org
Embark on a Journey Toward Obtaining Greater Cost

Information Regarding Supply Chains

CSCMP Explores Supply Chain Costing Book Summary PDF

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CSCMP Explores Supply Chain Costing Book Summary PDF

Uploaded by

Copyright:

Available Formats

CSCMP

The Worlds Leading Source for the Supply Chain Profession.

Supply chain managers recognize that the next frontier

Terrance L. Pohlen, PhD, CTL

2009 Council of Supply Chain

To submit a topic or suggest an author

supply chain costing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Editor: Jessica E. DAmico

Need for supply chain costing capability . . . . . . . . . . . . . . . . . . . . . . . 3

implementing supply chain costing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Step 1: Develop a Foundation for Effective Supply Chain Costing . . . . . . . . 8

Step 2: An Appropriate Structure for Capturing Costs and Supporting

Value Chain Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Customer Profitability Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Tools Employed for Cost Reduction. . . . . . . . . . . . . . . . . . . . . . . 11

Supply Chain Costing Tools for Planning. . . . . . . . . . . . . . . . . . . 12

Step 4: Linking Cost Information to Performance Measurement and

Step 5: Employ Strategies for Overcoming the Challenges Posed

2008-2009 CSCMP Research

Director Global Logistics Strategy

Kathryn (Kay) Dobie

School Of Business And Economics

Director Strategic Sourcing & Mfg Strategy

Figure 2: visibility of cost information provided by supply

Supply Chain Technology Consultant

Director Logistics Program, Army Research

Explores... provides todays supply

Figure 1: key findings from supply chain costing research. . . . . . 4

Figure 3: comparison of traditional and supply chain costing . . . 7

Figure 4: dimensions of supply chain cost information. . . . . . . . . . 7

Figure 5: the process or journey for implementing supply

Figure 6: how costs are consumed within the supply chain. . . . . 10

Figure 7: supply chain costing tools employed by research

Need For Supply Chain Costing Capability

Figure 1: key findings from supply chain costing research

Supply Chain Costing

CSCMP defines supply chain management as:

Figure 2: visibility of costing information provided by supply

Product Development Process

Manufacturing Flow Process

Figure 3: Comparison of traditional and supply chain costing

Supply chain costing

To support reporting of financial data and results

To support supply chain decision making

Allocation of costs to responsibility (budget) centers

Determining the costs of boundary spanning processes

Simple volume measures

Recognized and effect explicitly considered

High apparent precision

Low perceived precision

Internal and external value chain

Limited regarding factors driving costs

Identifies key cost drivers in the supply chain and how

Activities and supply chain processes

Figure 4: dimensions of supply chain cost information

Implementing Supply Chain Costing

Develop a foundation for effective supply chain costing

Create an appropriate structure for capturing costs and supporting

Select the appropriate costing tools to support information

Link cost information to performance measurement

Iterate within the firm

Those firms already on their supply chain