The Difference Between Total Delivered Cost & COGS

How to determ the Supply Chain TDC for your products.

Total Delivered Cost (TDC) is the amount of money it takes for a company to manufacture and deliver a product. However, we have observed that many companies do not make the best use of TDC in their supply chain planning process because of three common errors or oversights. First, many of them use a historical TDC metric, rather than a metric that is based on the supply chain costs they will incur now and in the future. Second, they often make oversimplified assumptions, ignore certain components of TDC, or use average accounting allocations rather than product-specific operational data when computing TDC. And third, companies often fail to use optimization technology to simultaneously make, for each product, the interdependent decisions in sourcing, production, warehousing, transportation, and distribution that will have an impact on TDC and yield the best overall future plan.

Cost of goods sold (COGS) is an accounting term to describe the direct expenses related to producing a good or service. COGS is typically listed on the income statement. We live in a dynamic world, and COGS is based on historical numbers and does not reflect the true costs incurred now and in the future, which should be used for strategic decisions.

Total Delivered Cost or TDC has become a critical metric in guiding supply chain planning decisions. You and your analyst need to decide what tools work best. Profit Point – It’s not just our experience in improving supply chains or our focus on the benefits, it’s how we do it. So, when thinking process improvement with analytics especially with merger and acquisition rationalization, the process should include a review of the existing supply chain (COGS) and a supply chain network design study of manufacturing and distribution footprint and utilization with an emphasis on improving Total Delivered Cost. A supply chain network design study that includes TDC will enable profitable growth in a changing business environment.

 

For the complete article: A fresh approach to improving total delivered cost

See: http://www.supplychainquarterly.com/topics/Strategy/20140311-a-fresh-approach-to-improving-total-delivered-cost/

It’s not just our experience in improving supply chains or our focus on the benefits, it’s how we do it. We are a closely-knit team that knows the whole supply chain from start to finish. We can find inefficiencies in any link. To top it off, our customers love us. https://profitpt.com/

About Richard Guy

Rich has over 25 years of experience selling technology and optimization solutions. He has served a wide range of industries in manufacturing, distribution, utilities, and finance. He is a thought leader in effective application of optimization technology to achieve increased business profitability.

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