What is the Total Supply Chain Management Cost (Five Elements)?
Total supply chain management cost comprises five key elements: transportation, inventory, warehousing, order processing, and administration. Transportation costs include fuel, driver salaries, and other costs associated with moving goods from point A to point B.
The inventory measures purchasing, storing, and managing the goods, while warehousing costs include facility rental, utilities, and labor. Order processing costs include delivery and technology for executing customer orders.
Finally, administration costs include the labor and overhead necessary for managing the supply chain. Together, these five elements comprise the total cost of Supply Chain Management.
Significance of Total Supply Chain Management Cost (Five Elements) in Logistics and E-commerce
Total supply chain management cost helps companies reduce inventory costs, reduce stock-outs and optimize inventory levels. Let’s look at the importance of employing total supply chain management costs.
1. Improves efficiency: Total supply chain management cost helps optimize operations, streamline processes, and reduce costs.
2. Enhances visibility: Total supply chain management cost helps improve inventory and visibility of supply chain operations, enabling informed decision-making.
3. Increases flexibility: Total supply chain management cost helps companies respond quickly to customer demand, changes in the market, and new business opportunities.
4. Enhances customer service: Total supply chain management cost helps companies deliver products faster and with higher quality, improving customer satisfaction and loyalty.
Prerequisites of Total Supply Chain Management Cost (Five Elements) and How It Works
Together, the five elements mentioned above form the basis of a successful supply chain operation, providing cost savings and efficiency to the organization. Here are the prerequisites of total supply chain management cost.
1. Planning: Develop an overall supply chain strategy and plan that determines the most cost-efficient methods for managing the flow of goods from suppliers to customers.
2. Sourcing: Identify suppliers and negotiate contracts that provide the best value and quality of goods at the lowest cost.
3. Transportation: Optimize the transportation network to reduce the total cost of logistics while meeting customer requirements.
4. Inventory management: Optimize inventory levels to meet customer service levels while minimizing the cost of carrying inventory.
5. Process improvement: Implement process improvement initiatives to reduce the cost of managing the supply chain.
Use Cases of Total Supply Chain Management Cost (five elements)
Suppose you’re looking to streamline your logistics business. In such a scenario, you can refer to the five elements. To start with, you can go for transportation costs in which you can account for fuel, tolls, and driver wages. You can easily track the costs associated with tracking goods when referring to inventory costs. These costs include labor, technology, and space for facilities.
If you’re willing to track warehousing costs, you can note renting or leasing warehouse space and associated labor costs for managing goods within the warehouse. Finally, you can go for two more elements: returns management cost and order fulfillment costs. In order fulfillment, you will be accounting for processing orders, packing and shipping products, and associated technology costs.