Cost is the first of three components of value. It is important because it represents what a customer must give up to purchase a product or service and what a business must give up to pay for what it consumes in value-adding processes. For the business, the higher the costs, the lower the profitability. Some type of cost forms the "input" for virtually all productivity measures, so productivity improvement is often a cost reduction effort. Many of the efforts emanating from operations and supply chain decisions are driven by costs.
