Minimizing Supply Chain Cost

Overview

One large driver of the supply chain value equation is cost of running the supply chain. It is also the factor that is more easily forecast and controlled. As such, it respresents and area where many companies seek to add value by minizing the total cost.

Supply Chain Costs

• Wages: are typically a lost cost of any business process. As such, a critical component of reducing wage cost is to identify employees that spend a portion of their time, idle, mostly due to bottlenecks in the process. Bottlenecks are typically identified by mapping out the process and identifying the input/output relatiionships and throughput for each sub-process.
• Managing Inventory: holding inventory represents a cost to the firm. That is, in addition to the oppurtunity cost of purchasing inventory, the inventory needs to stored and maintained, etc.. As such, an optimal inventory policy can help mitigate supply chain costs.