Cost to serve: The Interrelationships between costs in the Supply Chain of companies within the hard metal rock drilling and metal cutting tools industry

Abstract

The globalised market has introduced consumers to a variety of affordable products with a wide range of desired attributes from competitors who are strategically located in areas with affordable labour, expertise, and raw materials. This has encouraged firms to circumvent competition through outsourcing. However, outsourcing is not a panacea to solving organisational cost challenges because for organisations to succeed from the practice of outsourcing, they should adjust their operations according to the operation of the suppliers. Furthermore, the interaction with the suppliers exposes the manufacturers to supplier selection, contact, contracting, monitoring, and evaluation costs. These costs are enormous challenges if combined with the internal organisation costs. To address this dilemma, our study delved into the study of the interrelationship between costs to serve in the hard metal rock drilling and metal cutting tools industry and how the supplier-manufacturer cost collaboration aid to serve customers cost-effectively. By using the Decision-making trial and evaluation laboratory method (DEMATEL) to examine the relationship between costs to serve, our finding indicates that the supplier management cost had great interrelationships with other costs for companies in the hard metal rock drilling and metal cutting tools industry. Other costs that presented great interrelationships during the study included stock holding inventory costs. Ordering costs however presented the least interrelationship with other costs. We were exposed to a variety of costs that exceeded the domestic organisational boundaries including the supplier cost realm, creating an urgency for effective cost integration if the manufacturers are to serve their customers effectively. Findings also indicated the importance of a close relationship between the supplier and the manufacturer for product development through sharing of cost information in circumstances that do not compromise organisational proprietary information.