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Part D Strategic Cost Management (Pg328) Focus on sustainable cost…
Part D
Strategic Cost Management (Pg328)
Focus on sustainable cost reduction
(1) Increasing efficiency without
reducing cost (share capacity) (Pg329)(Pg93)
2 driver for strategic cost driver
(a) Structural - task & activities
(b) Executional - People increase efficiency/productivity
(2) 3 Tools manage cost (Pg330)
(1) Product Life Cycle & Cash Curve
(4 stages of product cost over life cycle)
(Pg332)(Pg95)
(2) Target Costing
what price new product to charge and determine from selling price
Figure 6.9 - 5 Steps - Target costing before product launch
(pg334)(Pg 96)
(3) Kaizen Costing
concept achieving incremental reduction in product costs through continuous program
Already start production
, continue improvement reduce cost
(Pg 336)(Pg96)
Case Study 6.5, 6.6
Figure 6.6 (pg331)
6 Question Identifying opportunities for achieving product cost
figure 6.11 Product life cycle, target
and kaizen costing)
(3) End of Economic Life
(Reverse Flow in value chain)
Figure 6.12 Value Chain Flow (Recovery, Reuse, recycling)
(Pg341)(pg97)
3(a)
Activity Based Management (ABM)
- managing activities of organisation value chain to reduce cost
Table 6.6 Factors to analysed for ABM to reduce cost (Pg344)
3(b)
Business Process Management (BPM)
to change internal process instead of product function to achieve cost saving (ie transfer back office to offshore)
(Pg344)
3(c)
Activity Value Analysis
Process identify value adding & non-value activities
(Figure 6.13 identifying Value adding & non-value adding activities)
(Pg 347) (pg98)
3(d) Continuous Improvement
once all activities rearranged, remove non value added activities, revised activity map satisfy, then focus on ongoing improvement process /
Gainsharing
Figure 6.14 CI and BPM
Formula : Unit of product / activity cost = any increase in ratio = positive outcomes
Formula ROI = Output/Input ratio (can improve by decrease net asset or increase profit)
(pg351)
Social Environmental value Chain(pg352)
org to focus on social & economic factor to society on their product impact
reviewing/designing product, consider
(a) type of material used to make,
(b) effect of manufacturing process (creation of toxic)?
(c) potential recycling material after end of economic life
(d) use of renewable energy product can consider
case study 6.8
case study 6.7
Social Environmental value
chain analysis
(pg352)
Part F: Strategic Profit Management (pg370)
(Downstream activities)
Possible causes of revenue differences
(a) Price
(b) Volume and order frequency
(c) Product Mix
(d) Sales Term
Cost differences between customer
Figure 6.20 (pg372)
Distribution channel, after sales services, product mix, marketing approach, order processing, quality, delivery, Financing
High and low cost customer to serve
High cost - customization product
low cost - standard product
Table 6.8 (pg373)
4 Quadrant (Customer) Profit vs Cost to serve
A = High profit Low Cost - Passive (best to serve)
B = High Profit High cost = Costly to serve (private banking)
C = Low profit Low cost = inexpensive to serve (price sensitive customer)
D - Low profit high cost to serve (aggressive customer, conventional customer, face to face, hardcopy)
(Pg374)
Steps for Customer Profitability analysis (Pg375)
Step 1: Identify Customer
Step 2: Measure revenue for each customer
Step 3: Measure full service cost of each customer
Step 4: Determine customer profitability
Step 5: Evaluate Customer profitability
Step 6: Take action - increase revenue, reduce cost and continue to monitor
Refer Case Study 6.13, 6.14)
and formula for
calculate Total Line item & Carton/pallet
Part E
Strategic Profit Management
(Upstream Activities)(Supplier)
Figure 6.15 (Types of supplier cost)
Two Broad Risk in Supply Chain
Macro Risk (natural disaster, war, economic downturn)
Micro Risk/Operational risk (Demand, manufacturing, supply, infrastructure and Financial Risk)
Issue: Poor supplier selection will lead to threat to the Organisation reputation
Supplier Management
(Pg354)
to building LT supplier relationship will help minimize risk and build stronger partnership within value chain
reducing hidden costs, improve product quality, greater efficiency and less double check and save time as supplier understand what we want
Global Suppliers (Pg354)
Cost advantage by getting more cheaper product as cheaper labour cost, benefit of lower taxes etc
evaluation and audit is important for global suppliers selection process
characteristic - supplier has achieve accreditation status (ie ISO 9001 quality management
Challenges
Additional freight cost, financial risk (ie forex, exchange rate), custom duties
Cultural , language diff, Legal politic system diff, lack of immediate interpersonal engagement
Social or economic issues whether supplier are using child labour, working condition which will damage company reputation
Required Supplier Codes of Conduct (Pg355)
Ensure supplier are social responsible
specify supplier hiring practices (age of employee)
limit on work hours
minimum rate of pay
work health and safety policies and practices
May required local 3rd party expert to audit supplier manufacturing and related facilities
Minimising Inventory Level (JIT) (Pg356)
minimising inventory level
consider JIT which focus on right inventory level, quality and effective inventory management system
Advantage: Better control over material flows , removing production bottlenecks
Can engage with Vendor manage inventory (VMI) arrangements - Supplier take full responsibilities to manage our stock with having minimal inventory level
Issue: Supply Chains Disruptions (pg356)
Risk of supplier failure, logistic failure, natural disasters, geopolitical events)
Vendor/Supplier Selection (Pg357)
important quality, reliability and environmental credentials vendor
organisation need to invest in upstream supplier monitoring activities to ensure comply with environmental and social expectation
to have multiple supplier to avoid threat of single supplier
Area examined during seleting supplier - ability, expertise and experience, ensure suitability of fit
Enter into contract and ensure supplier performance is monitored
-
tender committee , 3 vendor for selection
Total Quality Management (Pg 362)
doing it right first time/Zero defects
Aim on
controlling quality
, improving quality lead (Juran)
Quality Cost
(a) Cost of Controlling quality -
Prevention Cost & Appraisal Cost
(b) Cost of failing to control quality -
Internal failure & External failure
increase cost on
appraisal activities
will reduce external failure cost , through
shitting external failure to internal failure
Should invest on
prevention and appraisal activities
, so that failure cost are
decreased and overall value increased
Outsourcing
(pg367)
Outsourcing decision pyramid (figure 6.17)
advantages & disadvantages
need to have set of criteria upon vendor selection, monitoring and periodic audit.
Service level agreement (SLA), contract management, project management and supplier management skill are important
Offshoring (pg 367)
- to subsidiaries in overseas location
case study 6.10
case study6.9
Next Step 3(b)
Next Step 3(c)
Next Step 3(d)
Part C: Strategic Revenue Management (Pg323)