EFFECTIVE COST MANAGEMENT FOR EXCELLENCE IN THE VALUE CHAIN

Besides speed and reliability, cost is a key element in running effective, high performing supply chains • Although being more the traditional elements in evaluating and designing supply chains and their performance, they still form the foundation. Cost, quality, and time are the primary, underlying targets to operate. Failing in one or more of these three means jeopardizing the overall business model, not just the supply chain. • Cost management builds on transparency. Therefore having the right cost accounting systems in place is a key foundation. Traditional cost allocation mechanisms need to be replaced by “activity based costing” approaches to monitor process cost, but also factor cost for the individual operations. For an example, see the logistics cost section. • Factor cost reductions are a traditional way to reduce cost. Just pay less, and expect to get the same result - this works sometimes, but in most cases this leads to new challenges. Therefore cost / price driven initiatives need to be monitored carefully, and should be based on a more integrative, sustainability driven approach. • Important consideration in this context is to look at the total cost along the chain, which is covered by “Total Cost of Ownership” approaches. Similar to the underlying principles of activity based costing, this method looks for the impact of cost reductions in one area, on the cost position in all other areas in the supply chain, thus creating an integrative perspective. Typical example here are purchase price reductions which result in quality issues, availability issues, supply flexibility problems, or other shortfalls like problems in production to use a cheaper ingredioent or packaging material • As a core foundation, IN-NOVA appraoches regarding supply chain cost look for opportunities to avoid cost. This is why we use the methods of LEAN to identfy which activities in the supply chain are driven by waste, or by efforts to avoid and dispose of waste. Waste can be rework, additional activities, yield related problems, excess driving distances, obsolescence from wrong/outdated stock items, or many other reasons. • And there are many more aspects to consider in optimizing supply chain cost… and most of them need to be configured and selected according to the specific situation and needs of your company. Please contact us if you are interested in more details.