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Do we need detailed cost benefit analysis for every Supply Chain initiative?
I have seen many supply chain teams spending months in carrying out detailed cost benefit analysis for every improvement initiative they are contemplating. Many-a-times it is at the insistence of the Finance team and the CEO. In many cases, there are long debates on the computation method. Should we take total cost, variable cost, marginal cost or TIE? Is the detailed analysis worth the effort?
I would recommend carrying out a rough, back of the envelope, quick and dirty analysis to check whether the benefits are multiple times the cost or they are just about matching? If the benefits are multiple times, it’s worth going ahead as the payback may be in just a few weeks or months. Detailed analysis may cost you a few payback cycles!
However, we must estimate the benefit range and the cost range. If the minimum benefit exceeds the maximum cost substantially, just do it and realize the benefit faster.