What does the term "supply chain" means? Is it important for cost management? Explain.

​The fundamental knowledge to help answer the question will be using “Horngren’s Cost Accounting” text, to help facilitate the discussion
 
As per the above text, “Supply chain describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers, regardless of whether those activities occur in the one organization or in multiple organizations”.
 
The Key Success Factors that are related to the value chain, which have implications to why cost management is paramount includes:
·         Cost and Efficiency
·         Quality
·         Time
·         Innovation
·         Sustainability
 
With that said, Supply Chain Analysis consists of the two functions being production and design. And as per the text above, “Cost management is most effective when it integrates and coordinates activities across all companies in the supply chain as well as across each business function in an individual company’s value chain. Attempts are made to restructure all cost areas to be more cost-effective”.
 
An example that helps illustrate the following is rum. In this process you must consider the purchases of ingredients (rum is made with sugar cane and aged in barrels), the distillation, the blending, the ageing, the shipping, the bottling, and then it is ready to be distributed to the retailers. Before the retailers, reducing the costs (while ensuring the quality, time, innovation, and sustainability) of the rum, will help increase the margins when sold.
 
Now where are the levels that cost management prevalent in the above example and how does it come into play. Consider the following: This can be done by having good supplier relationship with farms that have high quality sugar cane. It can include having a competitive advantage on the right equipment to help efficiently distill the sugar cane into alcohol. It is having the right blend and innovation recipes to ensure it is something that will be purchased. It is having a network of suppliers to ensure that you have enough barrel inventory to be able to age the rum with the proper wood. And it is having the right sustainable practice of warehousing and moving of the barrels to provide the right rum quality. All then to have a large scaled logistics network to help distribute the product around