Quantifying opportunity costs in a supply chain

Abstract

Traditional costing methods with their overemphasis on short term saving in direct manufacturing and operating costs cause to overlook big savings which are not clearly explicit and may not be directly quantified into monetary terms. This causes the project of coordinating and establishing the supply chain fails to come up to expectations. This paper proposed a classification of costs in supply chain by classifying direct visible costs and hidden opportunity costs. It used an idea of the process costing and Activity-based Costing (ABC) by grouping various costs into their cost centers. With the proposed classification of supply chain costs, a company would be able to quantify the hidden benefits and their savings if they choose to join and coordinate in the chain in which these savings would be ignored and overlooked by the traditional costing methods.