Interorganizational Cost Management in Supply Chains: Practices and Payoffs

M A N A G E M E N T A C C O U N T I N G Q U A R T E R L Y S P R I N G 2 0 1 4 , V O L . 1 5 , N O . 3 I t is generally accepted that one of management’s primary roles is to optimize profits by controlling costs effectively. This includes costs associated with operating the day-today business, such as those related to labor, materials, and administrative functions, as well as more strategic costs, such as those for research and development (R&D) and capital investments in property and equipment. Traditionally, companies have focused on costs that they can control from within, which is known as internal cost management (ICM). But with the advent of technology capable of measuring and tracking costs along a supply chain, there is an emerging trend to manage costs associated with supply chain partners, too. As an example, a manager at a French multinational company explained that his former job description was to “manage” or “supervise” his suppliers. In his current role, however, he is expected to “collaborate with” suppliers. He further explained that one of his company’s primary goals was to work with suppliers to reduce costs. This collaborative approach is known as interorganizational cost management (IOCM), which is quite different from the more traditional model where a more powerful partner benefits at the expense of a weaker one.