Description
Cost reduction is among the most cited objectives in supply chain management. Additionally, if costs are to be reduced, companies increasingly turn their attention to their supply chain partners, so both suppliers and customers reach out for new frontiers of competitiveness and profitability.
Cost Management in Supply Chains –
Different Research Approaches
Stefan Seuring
Introduction to:
Seuring, S. / Goldbach, M. (eds.): Cost Management in Supply Chains,
Physica-Verlag, Heidelberg 2002, ISBN 3-7908-1500-4, 445 pages.
1 Defining Basic Terms......................................................................................2
2 Developing Concepts for Cost Management in Supply Chain Management..5
3 Applying Cost Management Instruments........................................................6
4 Building Cost Management Models................................................................8
5 Extending the Scope Beyond Cost..................................................................9
6 Suggestions for Future Research...................................................................10
7 References.....................................................................................................10
Summary:
Supply Chain Management and Cost Management are among the top issues on the
agenda of business practitioners and academic researchers. Yet, while this proves
the importance of these issues, it does not necessarily point towards their
integration. Still, the links between the two approaches exist. Cost reduction is
among the most cited objectives in supply chain management. Additionally, if
costs are to be reduced, companies increasingly turn their attention to their supply
chain partners, so both suppliers and customers reach out for new frontiers of
competitiveness and profitability. Yet, few approaches exist so far, addressing,
how cost management in a supply chain can be carried out. This book charts the
journey as it puts together different approaches capturing the extend of existing
research and business practice.
Keywords:
Supply Chain Management, Cost Management, Supply Chain Costing
2 S. Seuring
1 Defining Basic Terms
Among the objectives most frequently stated in supply chain management is the
reduction of cost along the supply chain.
1
Active partnering with suppliers and
customers enables companies to achieve optimization potential beyond the factory
gate. Often, these cost reductions are achieved rather as a side effect to other
measures implemented in supply chain management. Yet, the developments in
cost management thought in recent years have proven the importance of the issue.
2
Therefore, the establishment of a stream of research addressing the management
of costs in supply chains forms an important development
3
influencing both the
future development of cost and supply chain management.
1.1 Supply Chain Management
Various defintions of Supply Chain Management have been given. Among the
most widely used is the one provided by Handfield and Nichols: “The supply
chain encompasses all activities associated with the flow and transformation of
goods from raw materials stage (extraction), through to the end user, as well as the
associated information flows. Material and information flow both up and down the
supply chain. Supply chain management (SCM) is the integration of these
activities through improved supply chain relationships, to achieve a sustainable
competitive advantage.”
4
It is emphazised that this definition brings together the two major issues of supply
chain management; the management of material and information flows is
combined with the management of relationships. Only the combination of both
aspects addresses the full content of supply chain management. Looking at the
material and information flows only addresses logistics issues, while covering the
relationships only has already been done in other bodies of literature, such as
organization, network management or industrial relationships.
Still, the term Supply Chain Management is in its infacy and a general lack of
concepts is aknowledged. Few concepts such as the product-relationship-matrix
5
exist, that specially aim to address both dimensions. Future research will have to
improve such concepts and prove their validity. In total, Supply Chain
Management is not an issue limited to a certain theory or practice, but a rapidly
developing field.
1
See e.g. Stevens (1989), p. 3; LaLonde, Pohlen (1996), p. 1; Christoper (1998), p. 25.
2
See e.g. Franz, Kajüter (1997a); Fischer (2000); Brinker (2000).
3
See Cooper, Slagmulder (1999); Kajüter (2000); Seuring (2001).
4
Handfield, Nichols (1999), p. 2.
5
See Seuring (2001), p. 17.
Cost Management in Supply Chains 3
1.2 Cost Management
What has just been established for Supply Chain Management is also true for Cost
Management. In earlier years, both students at universities and practitioners in
their companies had a set of instruments that evolved from management
accounting. Data was put together and figures were calculated. As the competitive
environment of companies changed, it was not sufficient any more, to arrange past
data. Instead, accomplished cost information is needed to manage the future. This
has led to the introduction of the term cost management, which can be defined in
this way: “Cost management encompasses all (control) measures, that aim to
influence cost structures and cost behavior precociously. Among these tasks the
costs within the value chain have to be assessed, planned, controlled, and
evaluated.”
6
The proactive management of costs
7
extends much further than
management accounting and has lead to the establishment of a full set of new
concepts, such as target costing, activity-based costing, life cycle costing and
many more.
8
1.3 Cost Management in Supply Chains
As both cost management and supply chain management are rather platforms for a
wide variety of methods, concepts and instruments, it cannot be expected, that
looking at the intersection will lead to a single, clear concept.
This volume brings together many of the exiting approaches to cost management
in supply chains. As given by Seuring, the issue addressed can be defined as
methods or concepts allowing analysis and control of all costs within a supply
chain.
9
While this is a wide definition, originally used for Supply Chain Costing, it
covers all approaches taken and does not limit practices used to a certain set. In a
particular context, it might be necessary to limit the assessment to a certain set of
parameters, i.e. costs, resulting in a meaningful analysis of the model.
Taking into account the SCM definition given above, it becomes evident, that
costs are not only created by material and information flows along the supply
chain, but also by the relationships with the supply chain itself. The papers that are
put together in this book aim to illustrate this.
The remainder of this chapter will provide an overview of the papers presented in
the book. They are arranged according to four tracks, explained subsequently:
6
Dellmann, Franz (1994), p. 17.
7
See Kajüter (2000).
8
See e.g. Brinker (2000); Fisher (2000), which cover many of the existing approaches.
9
Seuring (2001), p. 126.
4 S. Seuring
1. Developing Concepts for Cost Management in Supply Chains,
2. Applying Cost Management Instruments,
3. Building Cost Management Models,
4. Extending the Scope Beyond Cost.
Each section contains a set of papers that offer an insightful discussion of recent
research. Concerning the practical content of the papers, here too four different
approaches can be found in the papers.
1. Descriptive Examples show how the research findings presented have drawn
from or can influence business practice.
2. Calculated Examples present data either from real world examples or use
model data to exemplify the issues addressed.
3. Case Studies are used to illustrate the concepts or instruments introduced.
4. Survey Data shed light on the issues presented drawing from a wider analysis.
Table 1 puts together the two dimensions used to systemize the papers and places
each paper in the resulting field. As the table emphasizes, a wide range of different
approaches is taken.
Empirical Data
Theoretical
Basis
Descriptive
Example
Calculated
Example
Case
Study
Survey
Data
Developing
Concepts
Seuring I
Slagmulder
Goldbach
Kajüter
Hines*
Applying
Instruments
Mehafdi
Teich*
Stemmler Seuring II
Baharami
Rebitzer
Bhutta*
Kotzab*
Building
Models
Voß*
Kaczmarek*
Skoromokhov
Krüger
Abdel-Malek*
Spinler*
Perona
Extending
Beyond Cost
Warschun* Zimmermann Miragliotta*
* Indicates that more than one author contributed to the paper. Only the first name is given.
Each paper is allocated to one field only, but several cover more than one issue in
each dimension.
Table 1: Overview to the Papers on Cost Management in Supply Chains
The following sections will use the four theoretical bases to discuss some general
issues of the papers. This aims to provide some general insights and point at some
links between the papers.
Cost Management in Supply Chains 5
2 Developing Concepts for Cost Management in
Supply Chain Management
The first section of the book provides insights on how cost management in supply
chains can be conceptualized. Common to all papers is the aim to go beyond the
limitations of exiting cost management concepts, as they are not capable of
considering a supply chain perspective. The papers emphasize that both cost
management and supply chain management integrate contributions from other
theories such as transaction costs, principal agent theory, or lean management.
Author Concept Characteristics
Seuring Supply Chain
Costing
Three cost levels need to be analyzed: direct,
activity-based, and transactions cost to
account for all costs in a supply chain and
find the right partner to control them.
Kajüter Proactive Cost
Management
Proactive cost management is a market-
oriented, anticipatory system. Specific
techniques are used to coordinate activities,
as a case study fromthe car industry shows.
Hines, Silvi,
Bartolini, Raschi
Lean Management
Accounting
Linking strategic and operational levels to
understand customers and processes, and
thus enhance customer value. A case study
fromcar sales offers details.
Slagmulder Interorganizational
Cost Management
Managing supplier and customer costs in
coordinated cost reduction programs are
carried out during product design and
manufacturing.
Goldbach Organizational
Settings
Cost Management has a functional and an
institutional dimension. Principal-agent-
relationships are important in the application
of cost management in a supply chain.
Table 2: The Conceptual Papers
Each paper has a specific perspective (see Table 2), and contributes different
ideas. Seuring (Chapter 2) shows that traditional cost management is not prepared
to take into account the supply chain perspective. Integrating transaction costs
would be able to introduce an analytical level to the cost management system.
Kajüter (Chapter 3) presents a framework that allows capturing how cost
management systems can be structured to fulfill specific tasks and coordinate
activities. Hines, Silvi, Bartolini, and Raschi (Chapter 4) integrate lean
management and strategic cost management to provide a case study how his can
be put into action. Slagmulder (Chapter 5) looks at the buyer-supplier-interface
and shows how interorganizational cost management is carried out. While the
previous papers touch on the issue, Goldbach (Chapter 6) addresses how
organization of and cooperation in the supply chains influences costs.
6 S. Seuring
Two prevailing perspectives form an important part of all papers. The first is
addressed in target costing, as this looks at how targets are set and can be
achieved. A process perspective as in activity-based costing accompanies this.
Looking at cost management objectives can systemize this. Starting with customer
needs, products are brought to the market to fulfill these, while various processes
(productive and administrative) are carried out using resources. Hence, reference
to target costing and activity-based costing is the unifying topic of the conceptual
papers. Furthermore, these two cost management instruments play a major role in
the next section.
3 Applying Cost Management Instruments
This section contains papers that provide insights on, how specific cost
management instruments or other techniques can be used in a supply chain to
reduce costs.
As Table 3 summarizes, most papers are based on existing cost management or
accounting techniques, e.g. target costing, life-cycle costing, activity-based
costing, transfer pricing or finance instruments. Still, other approaches, such as
electronic data interchange (EDI) or virtual enterprises help restructure or control
costs. A wide range of issues is addressed showing that no one single approach
will be able to solve all arising problems.
Target Costing is one of the most discussed cost management techniques. Seuring
(Chapter 7) builds on target costing methodology and integrates the three cost
levels of supply chain costing. A case study from the apparel industry gives
evidence how this methodology can help to analyze and reduce costs. Rebitzer
(Chapter 8) builds on life-cycle assessment and integrated cost data into this
framework to calculate life-cycle costs in two case studies from the automotive
and aerospace industry. Transfer pricing plays an important role in internal supply
chains. Mehafdi (Chapter 9) shows how this can be used and extended towards the
development of a balanced scorecard. Financial issues play an important role in
these. Stemmler (Chapter 10) provides evidence, how financial instruments can
help improve supply chain performance.
Regional production networks can be organized efficiently building on virtual
enterprise thought. Information technology assists in fulfilling orders and manage
costs, as Teich, Fischer and Käschel (Chapter 11) present. Bhutta, Huq and
Maubourguet (Chapter 12) look at the same objectives with the use of electronic
data interchange (EDI), which facilitates customer centric approach. Distribution
performance and costs play a major role satisfying customers’ needs. Bahrami
(Chapter 13) shows how horizontal cooperation can help reduce such costs in a
consumer goods case study. The last paper of the section stays with the topic of
Cost Management in Supply Chains 7
distribution, as Kotzab and Teller (Chapter 14) conducted a survey on how
logistics costs are managed in small and medium sized Austrian retail companies.
Author Basic Instrument Link to Supply Chain Management
Seuring Target Costing The paper shows how target costing in a
supply chain helps to analyze direct,
activity-based and transaction costs.
Case study fromapparel industry.
Rebitzer Life-Cycle Costing Life-Cycle Assessment methodology and
data are used for costing issues as case
studies fromcar and aerospace Industry
portray.
Mehafdi Transfer Pricing The importance of internal supply chains in
multinational companies is emphasized and
linked to the external chain. A balanced
scorecard is integrated.
Stemmler Finance Finance intermediates are used to improve
supply chain performance, specially in
reducing stock levels.
Sample calculation provides evidence.
Teich, Fischer,
Käschel
Virtual Enterprise A competence based approach helps non-
hierarchical production networks join forces
between SMEs for improved order
fulfillment and costing.
Bhutta, Huy,
Maubourguet
Electronic Data
Interchange
Changing to a customer centric approach,
where activity-based costing assists in
reducing costs and improve service levels.
Bahrami Distribution Costs Horizontal cooperation in a distribution
network allows reducing costs by
restructuring the distribution network, as
sample data emphasizes.
Kotzab, Teller Logistics Costs A survey on Logistic Cost Data Usage in
small and mediumsized Austrian retail
companies reveals that cost management is a
neglected function, still.
Table 3: The Intrumental Papers
While these papers usually report on current practice that is brought together with
theoretical or conceptual developments, the next section of the book looks at how
models are built, as they often portray an ideal supply chain.
8 S. Seuring
4 Building Cost Management Models
Models play an important role in the management of both costs and supply chains.
Consequently, this section brings together a total of seven papers that take a
modeling approach. Still, the papers do not contain only formula, but emphasize
how models can help improve supply chain solutions.
The papers show how models can help to generalize problems observed.
Reference Models play an important part in such solutions, as Voß and
Schneidereit (Chapter 15) as well as Kaczmarek and Stüllenberg (Chapter 16)
present. While the first paper mentioned integrates this with game theory, the
second does with simulation, respectively.
While the customer is meant to be the focus of all supply chain activities, it is
usually hard to evaluate what effect lost sales have in the supply chain. Perona
(Chapter 17) presents a model to do so in a three stage supply chain and compares
the results of his model to survey data.
Author Issue Modeled Characteristics
Voß, Schneidereit Supply Contracts and
Transaction Costs
Classifying supply contracts and building a
reference model for supply chain planning,
where decentralized decisions are modeled
with game theory.
Kaczmarek,
Stüllenberg
Process Chain and
Cost Model
Using simulation to model costs of inventory
oder policies to evaluate and improve supply
chain performance.
Perona Calculating Lost
Sales
Using a three-stage supply chain to model
the effects of lost customer sales on all
stages. Comparison to survey data from
Italian Apparel Industry.
Krüger Logistics Total Costs Using weight, volume and freight rate to
illustrate the influence of transportation costs
on global supply chains. Logistic Cost and
Reach as evaluation criteria.
Abdel-Malek,
Valentini, Zavanella
Inventory Modeling Modeling inventory in a supply chain under
uncertainty to reduce stock levels
Comparison of two models.
Skoromokhov J ob Shop Scheduling The logic of job shop scheduling is applied.
In an analogy this allows to balance
capacities along the supply chain.
Spinler,
Huchzermeier,
Kleindorfer
Options Trading Using game theory to model options for
logistics services and assessing cost
influences. Sample calculation provided.
Table 4: The Modeling Papers
Krüger (Chapter 18) calculates the logistics reach as an example of a measure, that
can be used to reduce logistics costs and enhance performance in a global supply
Cost Management in Supply Chains 9
chain. Abdel-Malek, Valentini and Zavanella (Chapter 19) reduce the scope
further and look at specific stock keeping models among uncertainty. As a lot of
capital still sits in stocks, this will improve supply chain efficiency. Within
operations planning, various approaches have been developed. Looking at small
and medium sized companies which operate in job shops, it arises that job
scheduling and sequencing is an important issue. Skoromokhov (Chapter 20)
argues, that the job shop scheduling problem to balance capacities can be used as a
model for supply chain optimization, where supply chain partners are treated as
the single jobs conducted in a job shop. The last paper of the section by Spinler,
Huchzermeier and Kleindorfer (Chapter 21) also uses game theory. Trade options
are modeled to help to improve the buyer-supplier interaction in dealing with non-
storable goods such as transport capacities.
While the modeling techniques presented help to solve specific problems, the last
section of the book contains three papers that even go beyond the scope of cost
management.
5 Extending the Scope Beyond Cost
The final section of the book extends the scope of supply chain management
beyond cost. The challenges arising from the developments in information
technology form an important part of supply chain management. Warschun and
Schneidewind (Chapter 22) address the question, how Internet based purchasing
tools can be applied in the retail industry. Therefore, the purchasing process is
structured, so to assess in which phase the single tools can be applied.
Author Extension Characteristics
Warschun,
Schneidewind
Internet Technology
in Purchasing
Internet technology helps to reduce
purchasing costs for retailers. The
purchasing process is structured.
Miragliotta, Perona,
Portioli-Staudacher
Complexity
Management
A conceptual model for complexity
management in supply chains is developed
and tested in a survey in the Italian
household appliance industry.
Zimmermann Balanced Scorecard A balanced scorecard for a supply chain is
developed allowing developing performance
measures. A case fromthe chemical industry
portrays first results.
Table 5: The Papers beyond a Cost Focus
Still, information technology is often only partially able to reduce complexity, so
this has to be management in its own regard, as Miragliotta, Perona and Portioli-
10 S. Seuring
Staudacher (Chapter 23) show. Their conceptual framework and model is
evaluated in a survey carried out in the Italian household appliance industry. The
link to the management of complexity costs will have to be addressed.
Supply chain performance cannot only be measured in terms of cost, so future
research must continue and integrating cost issues with other performance
measures. The paper by Zimmermann (Chapter 24) looks at how the balanced
scorecard can be applied in a supply chain. This addresses the wider issues of
performance management in a supply chain, which already forms an important
part of supply chain management literature. A case study from the chemical
industry portrays the application.
The three papers offer some insights into how supply chain management will be
developed further. They complement the previous sections of the book and chart
the course towards future research.
6 Suggestions for Future Research
This book brings together a set of different research approaches that address how
costs are managed in supply chains. By integrating conceptual work, cost
management instruments and models, a great variety of research work is
presented. Future work will have to build on the papers presented. Supply chain
management is a rapidly developing field, drawing on a multitude of theories,
concepts and instruments. This is also the case for cost management in supply
chains. Hence, it is of crucial importance to go into further detail of the
organizational implications of cost management in supply chains. The need to
meet customers’ needs and create value while reducing costs through supply chain
management will provide challenges and opportunities for companies and
researches, so issues discussed in this book will remain on the agenda.
7 References
Brinker, B. J . (ed.) (2000): Guide to Cost Management, Wiley, New York.
Christopher, M. (1998): Logistics and Supply Chain Management – Strategies for Reducing
Cost and Improving Service, 2
nd
Edition, Financial Times, London.
Cooper, R., Slagmulder, R. (1999): Supply Chain Development for the Lean Enterprise –
Interorganisational Cost Management, Productivity Press, Portland.
Dellmann, K., Franz, K.-P. (1994b): Von der Kostenrechnung zum Kostenmanagement
(FromAccounting to Cost Management), in: Dellmann, K., Franz, K.-P. (ed.): Neuere
Cost Management in Supply Chains 11
Entwicklungen im Kostenmanagement (New Developments in Cost Management),
Stuttgart, S. 15-30.
Fischer, T. M. (ed.) (2000a): Kosten-Controlling – Neue Methoden und Inhalte
(Controlling Costs – New Methods and Contents), Verlag Schäffer-Poeschel, Stuttgart.
Franz, K.-P., Kajüter, P. (eds.) (1997): Kostenmanagement – Wettbewerbsvorteile durch
systematische Kostensteuerung (Cost Management – Competitive Advantages through
Systematic Cost Controlling), Verlag Schäffer-Poeschel, Stuttgart.
Handfield, R. B., Nichols E. L. (1999): Introduction to Supply Chain Management, Prentice
Hall, New J ersey.
Kajüter, P. (2000): Proaktives Kostenmanagement. Konzeption und Realprofile (Proactive
Cost Management. Theoretical Concept and Empirical Evidence), Verlag Gabler/DUV,
Wiesbaden.
LaLonde, B. J ., Pohlen, T. L. (1996): Issues in Supply Chain Costing, in: The International
J ournal of Logistics Management, Vol. 7, No. 1 (1996), p. 1-12.
Stevens, G. C. (1989): Integrating the Supply Chain, in: International Journal of Physical
Distribution & Logistics Management, Vol. 19, No. 8 (1989), p. 3-8.
doc_464601696.pdf
Cost reduction is among the most cited objectives in supply chain management. Additionally, if costs are to be reduced, companies increasingly turn their attention to their supply chain partners, so both suppliers and customers reach out for new frontiers of competitiveness and profitability.
Cost Management in Supply Chains –
Different Research Approaches
Stefan Seuring
Introduction to:
Seuring, S. / Goldbach, M. (eds.): Cost Management in Supply Chains,
Physica-Verlag, Heidelberg 2002, ISBN 3-7908-1500-4, 445 pages.
1 Defining Basic Terms......................................................................................2
2 Developing Concepts for Cost Management in Supply Chain Management..5
3 Applying Cost Management Instruments........................................................6
4 Building Cost Management Models................................................................8
5 Extending the Scope Beyond Cost..................................................................9
6 Suggestions for Future Research...................................................................10
7 References.....................................................................................................10
Summary:
Supply Chain Management and Cost Management are among the top issues on the
agenda of business practitioners and academic researchers. Yet, while this proves
the importance of these issues, it does not necessarily point towards their
integration. Still, the links between the two approaches exist. Cost reduction is
among the most cited objectives in supply chain management. Additionally, if
costs are to be reduced, companies increasingly turn their attention to their supply
chain partners, so both suppliers and customers reach out for new frontiers of
competitiveness and profitability. Yet, few approaches exist so far, addressing,
how cost management in a supply chain can be carried out. This book charts the
journey as it puts together different approaches capturing the extend of existing
research and business practice.
Keywords:
Supply Chain Management, Cost Management, Supply Chain Costing
2 S. Seuring
1 Defining Basic Terms
Among the objectives most frequently stated in supply chain management is the
reduction of cost along the supply chain.
1
Active partnering with suppliers and
customers enables companies to achieve optimization potential beyond the factory
gate. Often, these cost reductions are achieved rather as a side effect to other
measures implemented in supply chain management. Yet, the developments in
cost management thought in recent years have proven the importance of the issue.
2
Therefore, the establishment of a stream of research addressing the management
of costs in supply chains forms an important development
3
influencing both the
future development of cost and supply chain management.
1.1 Supply Chain Management
Various defintions of Supply Chain Management have been given. Among the
most widely used is the one provided by Handfield and Nichols: “The supply
chain encompasses all activities associated with the flow and transformation of
goods from raw materials stage (extraction), through to the end user, as well as the
associated information flows. Material and information flow both up and down the
supply chain. Supply chain management (SCM) is the integration of these
activities through improved supply chain relationships, to achieve a sustainable
competitive advantage.”
4
It is emphazised that this definition brings together the two major issues of supply
chain management; the management of material and information flows is
combined with the management of relationships. Only the combination of both
aspects addresses the full content of supply chain management. Looking at the
material and information flows only addresses logistics issues, while covering the
relationships only has already been done in other bodies of literature, such as
organization, network management or industrial relationships.
Still, the term Supply Chain Management is in its infacy and a general lack of
concepts is aknowledged. Few concepts such as the product-relationship-matrix
5
exist, that specially aim to address both dimensions. Future research will have to
improve such concepts and prove their validity. In total, Supply Chain
Management is not an issue limited to a certain theory or practice, but a rapidly
developing field.
1
See e.g. Stevens (1989), p. 3; LaLonde, Pohlen (1996), p. 1; Christoper (1998), p. 25.
2
See e.g. Franz, Kajüter (1997a); Fischer (2000); Brinker (2000).
3
See Cooper, Slagmulder (1999); Kajüter (2000); Seuring (2001).
4
Handfield, Nichols (1999), p. 2.
5
See Seuring (2001), p. 17.
Cost Management in Supply Chains 3
1.2 Cost Management
What has just been established for Supply Chain Management is also true for Cost
Management. In earlier years, both students at universities and practitioners in
their companies had a set of instruments that evolved from management
accounting. Data was put together and figures were calculated. As the competitive
environment of companies changed, it was not sufficient any more, to arrange past
data. Instead, accomplished cost information is needed to manage the future. This
has led to the introduction of the term cost management, which can be defined in
this way: “Cost management encompasses all (control) measures, that aim to
influence cost structures and cost behavior precociously. Among these tasks the
costs within the value chain have to be assessed, planned, controlled, and
evaluated.”
6
The proactive management of costs
7
extends much further than
management accounting and has lead to the establishment of a full set of new
concepts, such as target costing, activity-based costing, life cycle costing and
many more.
8
1.3 Cost Management in Supply Chains
As both cost management and supply chain management are rather platforms for a
wide variety of methods, concepts and instruments, it cannot be expected, that
looking at the intersection will lead to a single, clear concept.
This volume brings together many of the exiting approaches to cost management
in supply chains. As given by Seuring, the issue addressed can be defined as
methods or concepts allowing analysis and control of all costs within a supply
chain.
9
While this is a wide definition, originally used for Supply Chain Costing, it
covers all approaches taken and does not limit practices used to a certain set. In a
particular context, it might be necessary to limit the assessment to a certain set of
parameters, i.e. costs, resulting in a meaningful analysis of the model.
Taking into account the SCM definition given above, it becomes evident, that
costs are not only created by material and information flows along the supply
chain, but also by the relationships with the supply chain itself. The papers that are
put together in this book aim to illustrate this.
The remainder of this chapter will provide an overview of the papers presented in
the book. They are arranged according to four tracks, explained subsequently:
6
Dellmann, Franz (1994), p. 17.
7
See Kajüter (2000).
8
See e.g. Brinker (2000); Fisher (2000), which cover many of the existing approaches.
9
Seuring (2001), p. 126.
4 S. Seuring
1. Developing Concepts for Cost Management in Supply Chains,
2. Applying Cost Management Instruments,
3. Building Cost Management Models,
4. Extending the Scope Beyond Cost.
Each section contains a set of papers that offer an insightful discussion of recent
research. Concerning the practical content of the papers, here too four different
approaches can be found in the papers.
1. Descriptive Examples show how the research findings presented have drawn
from or can influence business practice.
2. Calculated Examples present data either from real world examples or use
model data to exemplify the issues addressed.
3. Case Studies are used to illustrate the concepts or instruments introduced.
4. Survey Data shed light on the issues presented drawing from a wider analysis.
Table 1 puts together the two dimensions used to systemize the papers and places
each paper in the resulting field. As the table emphasizes, a wide range of different
approaches is taken.
Empirical Data
Theoretical
Basis
Descriptive
Example
Calculated
Example
Case
Study
Survey
Data
Developing
Concepts
Seuring I
Slagmulder
Goldbach
Kajüter
Hines*
Applying
Instruments
Mehafdi
Teich*
Stemmler Seuring II
Baharami
Rebitzer
Bhutta*
Kotzab*
Building
Models
Voß*
Kaczmarek*
Skoromokhov
Krüger
Abdel-Malek*
Spinler*
Perona
Extending
Beyond Cost
Warschun* Zimmermann Miragliotta*
* Indicates that more than one author contributed to the paper. Only the first name is given.
Each paper is allocated to one field only, but several cover more than one issue in
each dimension.
Table 1: Overview to the Papers on Cost Management in Supply Chains
The following sections will use the four theoretical bases to discuss some general
issues of the papers. This aims to provide some general insights and point at some
links between the papers.
Cost Management in Supply Chains 5
2 Developing Concepts for Cost Management in
Supply Chain Management
The first section of the book provides insights on how cost management in supply
chains can be conceptualized. Common to all papers is the aim to go beyond the
limitations of exiting cost management concepts, as they are not capable of
considering a supply chain perspective. The papers emphasize that both cost
management and supply chain management integrate contributions from other
theories such as transaction costs, principal agent theory, or lean management.
Author Concept Characteristics
Seuring Supply Chain
Costing
Three cost levels need to be analyzed: direct,
activity-based, and transactions cost to
account for all costs in a supply chain and
find the right partner to control them.
Kajüter Proactive Cost
Management
Proactive cost management is a market-
oriented, anticipatory system. Specific
techniques are used to coordinate activities,
as a case study fromthe car industry shows.
Hines, Silvi,
Bartolini, Raschi
Lean Management
Accounting
Linking strategic and operational levels to
understand customers and processes, and
thus enhance customer value. A case study
fromcar sales offers details.
Slagmulder Interorganizational
Cost Management
Managing supplier and customer costs in
coordinated cost reduction programs are
carried out during product design and
manufacturing.
Goldbach Organizational
Settings
Cost Management has a functional and an
institutional dimension. Principal-agent-
relationships are important in the application
of cost management in a supply chain.
Table 2: The Conceptual Papers
Each paper has a specific perspective (see Table 2), and contributes different
ideas. Seuring (Chapter 2) shows that traditional cost management is not prepared
to take into account the supply chain perspective. Integrating transaction costs
would be able to introduce an analytical level to the cost management system.
Kajüter (Chapter 3) presents a framework that allows capturing how cost
management systems can be structured to fulfill specific tasks and coordinate
activities. Hines, Silvi, Bartolini, and Raschi (Chapter 4) integrate lean
management and strategic cost management to provide a case study how his can
be put into action. Slagmulder (Chapter 5) looks at the buyer-supplier-interface
and shows how interorganizational cost management is carried out. While the
previous papers touch on the issue, Goldbach (Chapter 6) addresses how
organization of and cooperation in the supply chains influences costs.
6 S. Seuring
Two prevailing perspectives form an important part of all papers. The first is
addressed in target costing, as this looks at how targets are set and can be
achieved. A process perspective as in activity-based costing accompanies this.
Looking at cost management objectives can systemize this. Starting with customer
needs, products are brought to the market to fulfill these, while various processes
(productive and administrative) are carried out using resources. Hence, reference
to target costing and activity-based costing is the unifying topic of the conceptual
papers. Furthermore, these two cost management instruments play a major role in
the next section.
3 Applying Cost Management Instruments
This section contains papers that provide insights on, how specific cost
management instruments or other techniques can be used in a supply chain to
reduce costs.
As Table 3 summarizes, most papers are based on existing cost management or
accounting techniques, e.g. target costing, life-cycle costing, activity-based
costing, transfer pricing or finance instruments. Still, other approaches, such as
electronic data interchange (EDI) or virtual enterprises help restructure or control
costs. A wide range of issues is addressed showing that no one single approach
will be able to solve all arising problems.
Target Costing is one of the most discussed cost management techniques. Seuring
(Chapter 7) builds on target costing methodology and integrates the three cost
levels of supply chain costing. A case study from the apparel industry gives
evidence how this methodology can help to analyze and reduce costs. Rebitzer
(Chapter 8) builds on life-cycle assessment and integrated cost data into this
framework to calculate life-cycle costs in two case studies from the automotive
and aerospace industry. Transfer pricing plays an important role in internal supply
chains. Mehafdi (Chapter 9) shows how this can be used and extended towards the
development of a balanced scorecard. Financial issues play an important role in
these. Stemmler (Chapter 10) provides evidence, how financial instruments can
help improve supply chain performance.
Regional production networks can be organized efficiently building on virtual
enterprise thought. Information technology assists in fulfilling orders and manage
costs, as Teich, Fischer and Käschel (Chapter 11) present. Bhutta, Huq and
Maubourguet (Chapter 12) look at the same objectives with the use of electronic
data interchange (EDI), which facilitates customer centric approach. Distribution
performance and costs play a major role satisfying customers’ needs. Bahrami
(Chapter 13) shows how horizontal cooperation can help reduce such costs in a
consumer goods case study. The last paper of the section stays with the topic of
Cost Management in Supply Chains 7
distribution, as Kotzab and Teller (Chapter 14) conducted a survey on how
logistics costs are managed in small and medium sized Austrian retail companies.
Author Basic Instrument Link to Supply Chain Management
Seuring Target Costing The paper shows how target costing in a
supply chain helps to analyze direct,
activity-based and transaction costs.
Case study fromapparel industry.
Rebitzer Life-Cycle Costing Life-Cycle Assessment methodology and
data are used for costing issues as case
studies fromcar and aerospace Industry
portray.
Mehafdi Transfer Pricing The importance of internal supply chains in
multinational companies is emphasized and
linked to the external chain. A balanced
scorecard is integrated.
Stemmler Finance Finance intermediates are used to improve
supply chain performance, specially in
reducing stock levels.
Sample calculation provides evidence.
Teich, Fischer,
Käschel
Virtual Enterprise A competence based approach helps non-
hierarchical production networks join forces
between SMEs for improved order
fulfillment and costing.
Bhutta, Huy,
Maubourguet
Electronic Data
Interchange
Changing to a customer centric approach,
where activity-based costing assists in
reducing costs and improve service levels.
Bahrami Distribution Costs Horizontal cooperation in a distribution
network allows reducing costs by
restructuring the distribution network, as
sample data emphasizes.
Kotzab, Teller Logistics Costs A survey on Logistic Cost Data Usage in
small and mediumsized Austrian retail
companies reveals that cost management is a
neglected function, still.
Table 3: The Intrumental Papers
While these papers usually report on current practice that is brought together with
theoretical or conceptual developments, the next section of the book looks at how
models are built, as they often portray an ideal supply chain.
8 S. Seuring
4 Building Cost Management Models
Models play an important role in the management of both costs and supply chains.
Consequently, this section brings together a total of seven papers that take a
modeling approach. Still, the papers do not contain only formula, but emphasize
how models can help improve supply chain solutions.
The papers show how models can help to generalize problems observed.
Reference Models play an important part in such solutions, as Voß and
Schneidereit (Chapter 15) as well as Kaczmarek and Stüllenberg (Chapter 16)
present. While the first paper mentioned integrates this with game theory, the
second does with simulation, respectively.
While the customer is meant to be the focus of all supply chain activities, it is
usually hard to evaluate what effect lost sales have in the supply chain. Perona
(Chapter 17) presents a model to do so in a three stage supply chain and compares
the results of his model to survey data.
Author Issue Modeled Characteristics
Voß, Schneidereit Supply Contracts and
Transaction Costs
Classifying supply contracts and building a
reference model for supply chain planning,
where decentralized decisions are modeled
with game theory.
Kaczmarek,
Stüllenberg
Process Chain and
Cost Model
Using simulation to model costs of inventory
oder policies to evaluate and improve supply
chain performance.
Perona Calculating Lost
Sales
Using a three-stage supply chain to model
the effects of lost customer sales on all
stages. Comparison to survey data from
Italian Apparel Industry.
Krüger Logistics Total Costs Using weight, volume and freight rate to
illustrate the influence of transportation costs
on global supply chains. Logistic Cost and
Reach as evaluation criteria.
Abdel-Malek,
Valentini, Zavanella
Inventory Modeling Modeling inventory in a supply chain under
uncertainty to reduce stock levels
Comparison of two models.
Skoromokhov J ob Shop Scheduling The logic of job shop scheduling is applied.
In an analogy this allows to balance
capacities along the supply chain.
Spinler,
Huchzermeier,
Kleindorfer
Options Trading Using game theory to model options for
logistics services and assessing cost
influences. Sample calculation provided.
Table 4: The Modeling Papers
Krüger (Chapter 18) calculates the logistics reach as an example of a measure, that
can be used to reduce logistics costs and enhance performance in a global supply
Cost Management in Supply Chains 9
chain. Abdel-Malek, Valentini and Zavanella (Chapter 19) reduce the scope
further and look at specific stock keeping models among uncertainty. As a lot of
capital still sits in stocks, this will improve supply chain efficiency. Within
operations planning, various approaches have been developed. Looking at small
and medium sized companies which operate in job shops, it arises that job
scheduling and sequencing is an important issue. Skoromokhov (Chapter 20)
argues, that the job shop scheduling problem to balance capacities can be used as a
model for supply chain optimization, where supply chain partners are treated as
the single jobs conducted in a job shop. The last paper of the section by Spinler,
Huchzermeier and Kleindorfer (Chapter 21) also uses game theory. Trade options
are modeled to help to improve the buyer-supplier interaction in dealing with non-
storable goods such as transport capacities.
While the modeling techniques presented help to solve specific problems, the last
section of the book contains three papers that even go beyond the scope of cost
management.
5 Extending the Scope Beyond Cost
The final section of the book extends the scope of supply chain management
beyond cost. The challenges arising from the developments in information
technology form an important part of supply chain management. Warschun and
Schneidewind (Chapter 22) address the question, how Internet based purchasing
tools can be applied in the retail industry. Therefore, the purchasing process is
structured, so to assess in which phase the single tools can be applied.
Author Extension Characteristics
Warschun,
Schneidewind
Internet Technology
in Purchasing
Internet technology helps to reduce
purchasing costs for retailers. The
purchasing process is structured.
Miragliotta, Perona,
Portioli-Staudacher
Complexity
Management
A conceptual model for complexity
management in supply chains is developed
and tested in a survey in the Italian
household appliance industry.
Zimmermann Balanced Scorecard A balanced scorecard for a supply chain is
developed allowing developing performance
measures. A case fromthe chemical industry
portrays first results.
Table 5: The Papers beyond a Cost Focus
Still, information technology is often only partially able to reduce complexity, so
this has to be management in its own regard, as Miragliotta, Perona and Portioli-
10 S. Seuring
Staudacher (Chapter 23) show. Their conceptual framework and model is
evaluated in a survey carried out in the Italian household appliance industry. The
link to the management of complexity costs will have to be addressed.
Supply chain performance cannot only be measured in terms of cost, so future
research must continue and integrating cost issues with other performance
measures. The paper by Zimmermann (Chapter 24) looks at how the balanced
scorecard can be applied in a supply chain. This addresses the wider issues of
performance management in a supply chain, which already forms an important
part of supply chain management literature. A case study from the chemical
industry portrays the application.
The three papers offer some insights into how supply chain management will be
developed further. They complement the previous sections of the book and chart
the course towards future research.
6 Suggestions for Future Research
This book brings together a set of different research approaches that address how
costs are managed in supply chains. By integrating conceptual work, cost
management instruments and models, a great variety of research work is
presented. Future work will have to build on the papers presented. Supply chain
management is a rapidly developing field, drawing on a multitude of theories,
concepts and instruments. This is also the case for cost management in supply
chains. Hence, it is of crucial importance to go into further detail of the
organizational implications of cost management in supply chains. The need to
meet customers’ needs and create value while reducing costs through supply chain
management will provide challenges and opportunities for companies and
researches, so issues discussed in this book will remain on the agenda.
7 References
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nd
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Cooper, R., Slagmulder, R. (1999): Supply Chain Development for the Lean Enterprise –
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Dellmann, K., Franz, K.-P. (1994b): Von der Kostenrechnung zum Kostenmanagement
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Cost Management in Supply Chains 11
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