Total Supply Chain Management Cost is the cost incurred in the total functioning of the supply chain right from placing the order to executing it. It covers all the costs the company needs to incur for the successful functioning of the Supply Chain team in the organization. This is basically divided into five elements, namely:
• Order processing
• Acquisition of materials
• Manage inventory
• Manage supply chain finance and planning
• Manage Supply Chain related IT costs
So, the Total Supply Chain Management Cost would be the addition of the costs incurred for each of these functions individually and is divided by the total product revenue. This is a very important metric as it helps to know the Total cost for Supply Chain Management and compare it to the allocated budget for the same function. Dividing this into 5 buckets gives a better clarity to understand which function in SCM is more cost effective and which is not and helps to take corrective actions accordingly.
A company which tracks its Total Supply Chain management cost takes into account all the costs incurred throughout the entire process according to these five buckets which then eventually helps them to calculate the entire Supply Chain Management Cost.
Hence, this concludes the definition of Total Supply Chain Management Cost along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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