Supply chain surplus

Supply chain surplus is the value addition by supply chain function of an organisation. It is calculated by the following formula: Supply chain surplus = Revenue generated from a customer - Total cost incurred to produce and deliver the product. Supply chain surplus, also known as supply chain profitability, is a common term that represents value addition by supply chain function of an organization. Jonathan Birkin also defines supply chain surplus as "the difference between the revenue generated from the customers and the overall cost across that supply chain." The operational concept of it is 'sharing the profit that remains after subtracting costs incurred in the production and delivery of products or services. Ideally, profit is distributed to supply chain partners via transfer prices.' For example, a consumer buys a PC from Samsung at $2,500, which indicates the revenue supply chain achieved. All the stages incur costs to ensure the efficient transfer of funds, information, storage of the product and transportation to the final consumer. The difference between revenue from selling the PC and the supply chain cost represents the supply chain surplus or supply chain profitability. Supply chain surplus is the total profit shared by all the stages and intermediaries. The greater the supply chain surplus, the more successful the supply chain. The success of supply chain calculated by its overall surplus not by the profit at each part of stages. Supply chain surplus can be calculated by the following formulae: Supply chain surplus = Revenue generated from a customer - Total cost incurred to produce and deliver the product. Supply chain surplus = Customer Value - Supply Chain Cost. These terms were coined by Sunil Chopra, of the Kellogg School of Management and Peter Meindl, of Kepos Capital. Maximising supply chain surplus is an ultimate objective of the supply chain planning. When we look the amount of supply chain surplus, the success of that supply chain system and its future prospects can be known.