Prevention Costs

TermiKnowledge - Supply Chain, Procurement and Inventory Terminologies
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When I was dealing in supply chain management, I came across the term "supply chain management". I did not understand what supply chain management was at first. I know it is very complex, but once I understood that all items being produced in an organization are related somehow, I was able to see the concept on a much larger scale. Supply chain management simply refers to the sequence of events that occur throughout the production process. In this article, I am going to talk about supply chain management and the way it can be beneficial for organizations.

Supplier defects are something that happens. There are some suppliers that are much better than others. Suppliers that don't make any mistakes when manufacturing their products are not perfect and there will always be instances where suppliers make errors. These mistakes occur because they have no internal system for ensuring quality control and re-inspection of defective items. Therefore, in terms of supply chain costs, prevention costs or the costs that arise due to an internal failure in re-inspection and quality control are the appropriate term.

Supply chain management will only be effective if there is a proper identification and assessment of all costs incurred in producing a product and then only focusing on the cost-effective supplier. The costs incurred during production will have direct impact on the company's bottom line, while costs incurred during re-inspection and quality control will have indirect impact on the company. It is important that companies not only focus on prevention costs, but they should also focus on corrective costs incurred in fixing problems that were identified during internal checks. This will make a company less susceptible to the "cost-related failure" described above.

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