The paper was presented at the International Logistics Conference “Logistics 2002 – Flexible supply chains – concepts, experiences, challenges”. Poznań, May 14-15, 2002.
Supply chain integration provides many opportunities to improve customer service and eliminate unnecessary costs. Supply Chain Costing is an approach that advocates measuring the costs of processes (activities) occurring throughout the entire supply chain. Using cost information to evaluate supply chain efficiency is of strategic importance regarding composition and structure, performance measurement, and the allocation of benefits within the supply chain. Possessing the ability to improve value for the customer while simultaneously seeking opportunities to reduce costs opens new frontiers in supply chain management.
There are many factors that lead to the emergence of new cost management concepts in supply chains. Among the most important are:
– a shift from the concept of individual companies competing to the concept of competitive struggle between entire supply chains;
– a focus on maximizing value for the end customer;
– viewing costs as the price paid by the final customer;
– understanding that companies compete at the process level, and competitive advantage belongs to the organization that performs its business activities and processes better and more efficiently;
– the desire to introduce new, exclusively profitable product categories to the market and serve profitable customer categories;
– the need to identify the “lowest cost in the long term” partners and participants in the supply chain.
Analysis of the above factors indicates that the goal of every supply chain participant should be to develop a cost accounting system that provides information on process costs and efficiency and identifies what portion of these costs relates to products, distribution channels, customers, and suppliers. Companies are participants in many supply chains (often competing ones), which is why having appropriate tools for cost analysis is currently of strategic importance.
The tasks performed by Supply Chain Costing (SCC) include, among others:
– determining the efficiency of the entire supply chain;
– identifying opportunities for improvement and restructuring;
– measuring the efficiency of individual activities or processes;
– evaluating alternative supply chain configurations or selecting supply chain participants;
– evaluating the effects of implementing new technologies;
– identifying the profile of profitable products and creating a rational basis for category management in the supply chain.
Supply Chain Costing is a broader concept than the approach used in DPP (Direct Product Profitability), ABC (Activity Based Costing), or TCO (Total Cost of Ownership) methods. These methods focus on intra-organizational cost management, ignoring the essence of the integrated supply chain concept. In Supply Chain Costing, the subject of cost and process efficiency measurement is the entire chain of enterprises, not just one organization. The goal of the Supply Chain Costing program is to reduce the total cost of the chain and eliminate risks resulting from the sub-optimization of individual companies’ costs. The subject of analysis includes transaction costs, information flow, goods flow, inventory holding (Figure 1), and the “trade-off” relationships between these costs.
The first challenge facing companies that strive to implement the Supply Chain Costing concept is to organize their own system for measuring process costs and efficiency. The basic method for identifying process costs, measuring their efficiency, and calculating the costs of products, customers, distribution channels, and suppliers is Activity-Based Costing. Implementing this concept in companies that are participants in the supply chain is the foundation for building a future supply chain cost accounting system aimed at optimizing the costs of the entire chain.