Supply chain cost modeling
for improved quality, cost and delivery indicators
How to design your optimal supply chain using supply chain cost modeling?
What is the challenge?
The ability to adapt your supply chain and supporting network and infrastructure to changing customers, economic and technological developments, is the critical success factor in delivering your products and services at the right speed, quality and cost in a sustainable way. The challenge is to understand the consequence of certain supply chain design choices on the key cost drivers to make the right decision.
How can supply chain cost modeling help you?
Supply chain cost modeling supports the decision process by generating a financial communication model for the design and optimization of products, production systems and supply chains.
Our proven approach
What are the benefits of our way-of-working?
- We provide you with clear transparent cost structure, insights in main cost drivers and sensitivities
- We provide you with underpinning recommendations to maximize profit while increasing supply chain performance
- Our approach enables alignment of plans across the organization
Meet our skilled & hands-on experts on supply chain cost modeling
We have seasoned and experienced professionals in supply chain management, cost modeling and analytics who have spent many years working in the industry, tackling the kind of challenges you face every day. We help you to design, create and implement a winning supply chain, meeting your market requirements, defining alternative scenarios including cost modeling and finally supporting the implementation of the necessary changes. We make it happen!
Supply chain cost modeling
Why does supply chain cost modeling make sense?
Many supply chains managers are under cost pressure and need to understand their cost drivers. In large intercontinental supply chains, this becomes a challenge.
The interactions between the various cost elements are often not transparent and well understood. Next to the man-machine-material costs, there are the costs for freight and duty, warehousing, cycle stock, safety stock, stock in transit and so on. Costs are hidden in rate sheets, ERP systems, off-line databases, or local drives.
The challenge is to capture all data and create a comprehensive costs structure. A supply chain cost model presents all cost data. In a way that clearly visualizes the cost impact of design. Or visualizes the optimization decisions in the plan-source-make-deliver-return processes.
Without a cost model, the chance is high that cost down actions are suboptimal or will have the opposite effect. For example, if the focus is on bill of materials (BOM) costs, there could be opportunities to select suppliers with a lower price. However, if the new supplier is in a different region, lead times may go up, freight and duty may go up, and stock in transit and safety stock levels may increase.
To understand the optimal scenario from an end-to-end total cost of ownership (TCO) perspective, and to improve the quality of decision-making, the use of a supply chain cost model is indispensable.
Our supply chain costs models are communication tools
Our proven costs models provide financial insights. The models support fact-based decision taking during supply chain (re)design and supply chain optimization projects.
The objective is to develop a financial communication model for the design and optimization of products, production systems and supply chains in which all defined parameters are translated into costs and defined cost prices. This approach will bring a structure, a clear visualization and a fruitful end-to-end overview.
We are a team of experienced professionals who think that supply chain management is the key driver for lasting business success: we provide you with clear transparent cost structure, insights in main cost drivers and sensitivities, underpinning recommendations to maximize profit while increasing supply chain performance.
Our methods and tools include activity based cost calculation (MMM-model) where process steps are evaluated for their added value against added cost, we also work with supply chain guru as well as supply chain simulation.
Our approach
Phase 1) Preparation
To scope the assignment, we start with the understanding of the current business and supply chain set up. We will agree on the product portfolio, the markets and regions and what level of detail is required. We will look into the current warehouse footprint, industrial footprint, supply base and customer base.
The start and the end of supply chain must be defined. This preparation is needed to know what kind of scenarios the model should be able to fit. For example: Do you want to simulate the impact of different modes of transport? Or do you want to understand if it will benefit to produce locally instead of import?
When the scope is clear, the data gathering can start. Data gathering is often underestimated. In many cases, the data is stored in various departments like purchasing, supply chain, engineering, sales.
A data plan must be made to obtain all costs and prices for materials, costs and machines, but also other supply chain elements like lead time and demand, product structure and industrial structure. By mapping the current supply chain, possible improvement scenarios will already come to the surface.
Phase 2) Build, validate and run scenarios
It is critical to know the dependencies in the model. Changing one element in the supply chain will have a cascading effect upstream and downstream.
When all dependencies and other elements are clear the cost model can be built. To validate if the model reflects reality, first the ‘as is’ situation is modeled. This is the baseline supply chain cost model.
Simulation of improvements can begin by developing the ‘what if’ scenarios. The sensitivity of the supply chain is analyzed to understand the main costs drivers.
The power of the supply chain cost model is that not only the landed costs become clear, but also the impact on inventory and transportation costs. Running the scenarios is an iterative process, often in a workshop setting.
By reviewing the outcome of the scenarios, other ideas come up and can be entered in the model again. In the evaluation, the best scenarios are selected for review with the main stakeholders.
Phase 3) Report out
A written summary and formal report out will be the final deliverable, showing a clear and transparent cost structure, which give insights into main cost drivers and sensitivities.
Based on the evaluation of the selected cost down scenarios, an underpinned recommendation will be given to maximize profit while increasing supply chain performance. This can be used for final decision making and alignment of plans across the organization.
Why work with us
We have seasoned and experienced professionals in supply chain management, cost modeling and analytics who have spent many years working in the industry, both in and outside Philips, tackling the kind of challenges you face every day.
We can also support you in the actual implementation of the resulting supply chain changes with our hands-on, make it happen attitude.
Our supply chain support covers these themes:
- Supply chain strategy & design
How to make your business strategy work? - Supply chain planning & control (S&OP)
How to make sales & operations planning work? - Supply chain optimization booster
How and where to optimize our supply chain? - Supply chain cost modeling
How to design your optimal supply chain using supply chain cost modeling? - Design for supply chain
How to design my products to avoid potential manufacturing and supply chain issues?
We are Philips Engineering Solutions
As an innovation service provider, we want you to be successful in delivering your innovations to the market, where they can matter to your customers and society as a whole. Our mission is simple: to make innovation work. Inside and outside Philips, from start-up to multinational. Being globally active with almost 1,000 specialized experts and 10,000 m² of high-tech infrastructure, we can accelerate your innovation with development, realization and consultancy.
Supply chain cost modeling is one of the focal areas of Industry consulting, one of the eight key areas of expertise of Philips Engineering Solutions. We have a team of seasoned business and industry professionals. With a hands-on approach and expertise, we create tangible results that last: we are implementation-oriented. Working closely together with your employees, we create an on the job learning setting. This enables your organization to strengthen or develop its own ‘continuous improvement’ culture.