What are the costs of Supply Chain Management?

The costs associated with supply chain management is a complex question and one that is still quite fundamental to the profitability of any business in the supply chain remit. When defining costs associated with any service or business the first action should be to define what exactly you are going to pay for. This seems like a basic question but it is often overlooked as the awareness of how integrated a part or the supply chain is within a business is often misunderstood. As an example if one is looking at the costs for warehousing then this is based on different factors to someone looking at the costs of shipping. another factor is how long the goods are stored (static or dynamic) within the supply chain. Hence the costs are based on what elements of the supply chain are being used to move goods from point A to point B. As always the definition of the supply chain that is being used will drive the rationale behind the need to pay for these elements of the supply chain and the management thereof.


The primary objective of SCM is to fulfill customer demands through the most efficient use of resources, including distribution capacity, inventory, and labor. In theory, a supply chain seeks to match demand with supply and do so with the minimal inventory. Various aspects of optimizing the supply chain include liaising with suppliers to eliminate bottlenecks; sourcing strategically to strike a balance between lowest material cost and transportation, implementing just-in-time techniques to optimize manufacturing flow; maintaining the right mix and location of factories and warehouses to serve customer markets; and using location allocation, vehicle routing analysis, dynamic programming, and traditional logistics optimization to maximize the efficiency of distribution. The term "logistics" applies to activities within one company or organization involving product distribution, whereas "supply chain" additionally encompasses manufacturing and procurement, and therefore has a much broader focus as it involves multiple enterprises (including suppliers, manufacturers, and retailers) working together to meet a customer need for a product or service. Starting in the 1990s, several companies chose to outsource the logistics aspect of supply chain management by partnering with a third-party logistics provider (3PL). Companies also outsource production to contract manufacturers. Technology companies have risen to meet the demand to help manage these complex systems. https://en.wikipedia.org/wiki/Supply_chain

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