The supply chain is often one of the greatest sources of cost for companies and

Question

The supply chain is often one of the greatest sources of cost for companies and consequently it often becomes a major target of cost reduction. This is true for both product and service industries. For example, in manufacturing, managers seeking to reduce supply costs have a number of options including re-designing products so that they can be built with less costly parts (sometimes referred to as "value engineering" (Meeker & McWilliams, n.d.), automation, transitioning sources of supply from high-cost domestic suppliers to suppliers in low cost regions of the world, among other options. In the service industry input services must be combined in some fashion to provide the output service a customer wants to buy. Therefore, managers seeking to reduce supply chain costs can automate input services or outsource them from high-cost employees to low-cost service-providers, among other options. In this light, address one of the following:

(a) Select an organization. Discuss in detail some methods it has used to reduce supply chain costs and what results were achieved; (

b) Select a cost reduction approach or method (like the concept of "value engineering" (Meeker & McWilliams, n.d.) I mentioned above, or outsourcing of employee labor, as examples), provide a real-world illustration of it, and discuss the advantages and disadvantages it holds for organizations that use it;

(c) Select a company. How would you determine how much of the total cost of that company is associated with the supply chain? Provide detailed steps that you would take to perform this analysis and arrive at a conclusion. Given that the supply chain is one source of cost, what are the other sources of cost for the company?

Explanation / Answer

Answers:

To determine the costs on supply chain, it is necessary to conduct an analysis by analyzing the various costs that are involved in supply chain management. This involves quantitative analysis of the inputs & the outputs used which includes the physical flow of material & resources that are used for manufacturing the product. The most important steps under this include understanding how the suppliers price their supplies & identifying supplier’s critical supply chain costs.

Other costs incurred by the organization:

Various other costs that are incurred by an organization can include fixed & variable costs. Fixed costs can include overhead costs whereas variable involves labor costs, material costs, and product & period costs. Other types of costs can include controllable & uncontrollable costs, out of pocket costs that include usage of cash, incremental & opportunity costs etc.

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