10.9 Conclusion

Let's end with the beginning in mind. That is, ask, "What makes an iceberg so dangerous?" Answer: Boat captains make decisions based on what they see. But, what sinks ships is the part of the iceberg that is hidden beneath the water's surface. The same is true for many purchasing decisions: Managers make decisions based on purchase price—which is just the tip of the cost iceberg. To make great supply management decisions, you need to make all of the costs visible. At this point, let's answer two questions that you might be asking.

• Why don't managers use the costing techniques we've just discussed? The answer is simple: Advanced costing is hard work. Besides, many people are afraid of the numbers. You can't afford to be afraid of the numbers. In fact, good costing skills will help you become a supply management superstar. One more thought: Many companies don't reward you for making decisions based on total costs. You probably aren't surprised that when measurement systems emphasize purchase price, buyers make decisions based on purchase price.

• Why is advanced costing so important? In his best-selling book, Good to Great, Jim Collins pleads with managers to "confront the brutal facts." Hopefully, as you worked through the examples we discussed, you noticed an important fact: You can't confront the brutal facts if you can't see the brutal facts. Advanced costing is one of your most powerful tools for making the brutal facts visible—both within your firm and across your supply chain. When everyone can see the facts, your conversations change. You and your entire team can make more competitive decisions that will help you win the tough battles in tomorrow's competitive marketplace.

One final thought: We've talked about a variety of costing tools. Successful professionals use the right tool for each situation. Some buys simply don't merit the time and effort that go into cost modeling or a total cost analysis. Figure 10.10 helps you match each tool to your buying strategy. Using the right tool at the right time will help you make great decisions efficiently.