Understanding SCOR Metric: Total Supply Chain Management Cost (CO.1.1)

In today’s competitive business environment, effective supply chain management is crucial for maintaining profitability and achieving long-term success. One of the key metrics in assessing supply chain performance is the Total Supply Chain Management Cost (CO.1.1). This metric provides a comprehensive view of all costs associated with managing the supply chain, helping businesses identify areas for improvement and cost reduction.

What is Total Supply Chain Management Cost (CO.1.1)?

Total Supply Chain Management Cost (CO.1.1) encompasses the total cost involved in managing order processing, acquiring materials, managing inventory, and handling supply chain finance, planning, and IT costs. These costs are represented as a percentage of total product revenue. The accurate assignment of IT-related costs can be challenging but is essential for a true representation of total supply chain costs. Common methods include Activity-Based Costing or allocation based on user counts, transaction counts, or departmental headcounts.

Key Components of CO.1.1

Understanding CO.1.1 involves breaking it down into its key components:

• Order Management Costs: Expenses related to processing and managing customer orders.
• Material Acquisition Costs: Costs incurred in sourcing and purchasing raw materials.
• Inventory Carrying Costs: Expenses associated with storing and maintaining inventory.
• Supply Chain Finance and Planning Costs: Costs related to financial planning, budgeting, and overall supply chain management.
• Supply Chain IT Costs: Expenses for information technology systems and support necessary for supply chain operations.

Calculation of Total Supply Chain Management Cost

Calculation: [Order Management Costs + Material Acquisition Costs + Inventory Carrying Costs + Supply-Chain-Related Finance and Planning Costs + Total Supply-Chain-Related IT Costs] / [Total Product Revenue]

This calculation provides a clear percentage of revenue spent on managing the supply chain, offering insights into the efficiency and cost-effectiveness of supply chain operations.

Data Collection for CO.1.1

Data collection involves capturing resource expenses, such as salaries and supplies, from the organization’s general ledger accounting system. These expenses are then traced and assigned to core processes based on employee time and operational drivers like the number of units consumed. This ensures that costs are accurately distributed across supply chain processes.

Importance of CO.1.1 in Supply Chain Management

Monitoring the Total Supply Chain Management Cost is vital for several reasons:

• Identifying Inefficiencies: By analyzing CO.1.1, businesses can pinpoint areas where costs are high and investigate potential inefficiencies.
• Optimizing Resources: Understanding where resources are being used allows for better allocation and optimization, ensuring that every dollar spent contributes to the overall efficiency of the supply chain.
• Enhancing Profitability: Reducing supply chain costs directly impacts the bottom line, improving overall profitability.
• Maintaining Competitive Edge: Efficient supply chain management ensures that businesses remain competitive by minimizing costs and maximizing service levels.

Conclusion

The Total Supply Chain Management Cost (CO.1.1) is a critical metric for any business looking to optimize its supply chain operations. By comprehensively understanding and managing these costs, companies can enhance their operational efficiency, reduce waste, and improve profitability. Implementing best practices in risk management, data management, and continuous improvement, as outlined by SCOR, will further support achieving these goals.

Integrate the monitoring of CO.1.1 into your regular supply chain assessment processes to ensure a resilient and efficient supply chain, capable of sustaining long-term success in an ever-evolving market landscape.

By focusing on Total Supply Chain Management Cost, businesses can ensure they are not only meeting but exceeding industry standards, thus securing a robust and competitive position in the market.