Supply Chain Costing and Performance Management

A “how-to” guide for supply chain professionals who need accurate cost information for end-to-end processes

With the increasing pace of globalization, supply chain professionals find that they have less and less margin for error in their decisions making. Competition is getting more intense, and, unfortunately, CFOs and accountants do not currently provide supply chain managers with the information required to make better decisions. Supply Chain Costing and Performance Management, 2nd Edition, will show you (and the executives you report to) how to understand and apply various enterprise and corporate performance management (EPM/CPM) methods related to costs and profit margins and performance measurements.

This book is a “how-to” guide to assist supply chain managers and employee teams to obtain interenterprise cost information on supply chain processes. It provides techniques for obtaining accurate cost and performance information on the activities performed within your firm and on activities performed by trading partners. The techniques and approaches in this book were developed from supply chain costing practices implemented by leading-edge firms. You will learn how you can gain access to reasonably accurate costs and profit margins involved with suppliers, products, stock keeping units (SKUs), service-lines, channels, and customers. In addition, you will gain insight into the activity costs in end-to-end business processes, including the “drivers” for each type of cost.

• Learn how to access accurate cost and pricing information related to both your company and your trading partners
• Overcome siloed information by creating your own costing practices using proven methods drawn from leading firms
• Understand what drives activity costs for each step in end-to-end business processes
• Assess the performance of your costing activities with step-by-step measurement guidelines
• Make better decisions and improve performance and profitability with clearer, more transparent cost and price data

The information in this book will empower supply chain managers with the ability to make better decisions and improve their organizations’ performance and profitability.

Preface ix

About the Authors xiii

Chapter 1: The Supply Chain Costing Journey: Why You Need to Take It 1

Chapter 2: Key Observations That Support the Development of the Book 13

Chapter 3: The Nature of Supply Chain Costing 27

Chapter 4: Developing a Foundational Understanding of Strategic Supply Chain Cost Management 45

Chapter 5: Why Supply Chain Cost Systems Differ from Traditional Cost Systems 59

Chapter 6: Overview of Cost Tools and Cost Classification 75

Chapter 7: Indirect Costs, the Influence of Cost Allocation, and the Need to Understand Activities 93

Chapter 8: The Need for Value Chain Analysis 109

Chapter 9: Customer and Distribution Channel Profitability Analysis 125

Chapter 10: Tools for Reducing Supply Chain Costs 139

Chapter 11: Supply Chain Cost Planning Tools 159

Chapter 12: Align Performance Measures with the Strategy 181

Chapter 13: Accept the Challenge of Improving Supply Chain Costing 207

Appendix: Additional Process and Productivity Tools for Supply Chain Costing 231

Index 241

Gary Cokins, PhD, is the Founder of the advisory firm Analytics-Based Performance Management, LLC. He is certified in Production and Inventory Management by the American Production and Inventory Control Society and is a sought-after speaker at conferences around the world.

Terrance Pohlen, PhD, is Senior Associate Dean and Professor of Marketing, Logistics, and Operations Management at the University of North Texas.

Thomas Klammer, PhD, is Regents Professor Emeritus of the University of North Texas, Denton. He is internationally recognized for his work in capital investment decision methods and cash flow reporting.

Powerful trends, including globalization and digitization, are combining to make the global supply chain environment more competitive. Reduced margins for error and a lack of full information from chief financial officers and accountants are making it increasingly difficult for supply chain managers and professionals to make effective decisions.

In the newly revised Second Edition of Supply Chain Costing and Performance Management, an accomplished author team of consultants, supply chain professionals, and operations experts combine to deliver an essential resource that will show you—and the executives you report to—how to understand and apply enterprise and corporate performance management (EPM/CPM) methods to reduce costs and increase profit margins.

You’ll discover how to obtain inter-enterprise cost information on supply chain processes and to implement techniques for getting accurate cost and performance information on the activities performed both within and outside of the firm. The book provides best practices created and applied by leading-edge firms in a variety of industries and shows you how to access accurate cost and profit information on suppliers, products, SKUs, service-lines, channels, and customers.

The authors demonstrate how to achieve visibility and transparency in the activity costs in various end-to-end business processes, as well as the drivers for each of these costs. You’ll learn to get the information you need to make the best decisions possible and improve your organization’s performance and profitability.

Perfect for supply chain managers, chief financial officers, accountants, and other leaders whose work requires them to make key decisions in the supply chain process, the newest edition of Supply Chain Costing and Performance Management remains an indispensable reference for improving your firm’s supply chain practices.

Increase your profit margins and decrease your supply chain costs with this “how-to” guide on accessing cost information in your business processes

Supply Chain Costing and Performance Management, Second Edition is a manual on how to apply enterprise and corporate performance management (EPM/CPM) methods related to costs, profit margins, and performance measurements in your organization’s supply chain. The book demonstrates how to achieve increased transparency into your supply chain processes, both within your organization and without.

The increased visibility will allow you to decrease costs and increase profit margins. You’ll understand what drives activity costs for each step in your end-to-end business processes and assess the performance of your costing activities with step-by-step measurement guidelines.

The book offers you the techniques you need to access and retain information on the costs and profit margins associated with suppliers, products, SKUs, service-lines, channels, and customers.

Ideal for supply chain managers and employee teams who want to improve the efficacy of their organization’s supply chain practices, Supply Chain Costing and Performance Management will also earn a place in the libraries of chief financial officers and other executives who wish to better understand the information limitations in supply chain management that are degrading efficiency.