To Evaluate Cost Savings in a Supply Chain : Two Examples from Ericsson in the Telecom Industry

Abstract

An accurate cost analysis is necessary to evaluate changes in a supply chain; this article shows how a rather simple framework can be used when evaluating changes in a supply chain. The framework is built on a Supply Chain Cost (SCC) model and customer service measurements, delivery precision and leadtime. Both suggested changes in a supply chain and already executed changes can be evaluated by the framework. Two different examples from the company Ericsson are presented to illustrate the framework, which is a 5 step analysis model. The existing, or pre-existing, supply chain is analysed, described and defined. The SCC and performance measures are measured and/or estimated. Improvements are designed and defined. The same measures as before are measured again. The measures from before and after the change of the supply chain are evaluated to decide if the changes are improvements or not. Cutting costs in one area of the supply chain can be a mistake if not the total supply chain is considered and the total SCC. Considering both the SCC part and customer service measures present a wider understanding of the change. It is shown that SCC can be used as a tool to identify cost savings and evaluate if a change project will, or has, resulted in the cost savings the project aims for. Rough standard costs measures should be avoided instead actual costs should be used as much as possible. The used framework hopefully stimulate to similar analyses in other companies with other supply chains.