Logistics and supply chain managers have increasingly realized that the greatest potential to create financial value lies not within a single firm but across all the trading partner enterprises comprising a supply chain, particularly at the interface between trading partners.  At the boundaries of their firm – with their suppliers and customers – is where companies can identify mutually beneficial cost savings initiatives plus new and greater opportunities to reduce costs from core processes and to provide higher service levels to their customers. It is essential for organizations to measure the costs and profit margins of products, service-lines, channels, and customer to manage them.

Supply chain profitability and cost measurement have been frequently identified as a source of value creation and competitiveness. It involves the collection, expense assignment, and analysis of profit margins and cost information across all of the work activities comprising a supply chain for the purpose of identifying opportunities to obtain a competitive advantage through a combination of reduced costs or improved performance. Although managerial accounting practices and systems exist, few companies have completed the journey of inter-organizational supply chain profit management.    

With this advanced form of managerial accounting a supplier can have a profit and loss (P&L) report for each of its customers (including profit margins for products, SKUs, services, distribution channel, and costs-to-serve customers). This information also provides the “drivers” for each type of cost.
Analytics with improved forecasting and reduced uncertainty are also playing a role in reducing excess inventory and cycle-time buffers as costly insurance to assure reliable on-time deliveries without stock-outs.

This presentation is based on the book “Supply Chain Costing and Performance Management” that the presenter co-authored published by John Wiley & Sons. The book is a result of a research study to examine the application of supply chain profit and costing measurement methods in multiple industries and international settings.