Strategic cost management devika rajagopal
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Strategic cost management is a program that businesses use to regularly identify and analyze cost drivers to lower costs and maximize value. It allows businesses to not only lower costs but gain a competitive advantage. Strategic cost management involves creating a strategic plan, prioritizing operations, and ensuring efficient use of resources. Once implemented, it brings transparency to costs and allows managers to make timely cost decisions. It can also show which customers are most or least profitable. The framework includes core functions, value-adding activities, and support activities. Effective strategic cost management requires support from top management, integrated information systems, and cross-functional teams.
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Strategic cost management devika rajagopal
- 1. Strategic Cost Management DEVIKA RAJAGOPAL
- 2. What is strategic cost management ? • Strategic cost management is a program established businesses use in order to regularly identify and analyze cost drivers to lower costs and maximize total value. • By implementing a strategic cost management program, businesses can not only lower their costs but also create a strategic competitive advantage. • Applications of this type of management program include creating a strategic plan, setting priorities in operations and ensuring it is using limited resources appropriately.
- 3. Strategic cost management equals Profit • A strategic cost management plan is an in-depth solution that brings transparency to your costs. • Once a strategic cost management Plan is in place organization executives and managers can make timely and effective cost management decision. • A strategic cost management system can also show you who your most profitable and costly customers are and why they are profitable or costly.
- 4. Framework of strategic cost management programs • The first component includes its core functions. • The next component focuses on the added value of activities . • The last component of the framework are the activities that support the core activities.
- 5. Steps for strategic cost management • Reviewing the strategies of the business. • Train team members to implement the strategic management plan. • Fact finding . • The findings should then be analyzed and recommendations for changes to be made. • If changes are necessary, an employee should be made accountable for overseeing each change.
- 6. Tips for having an effective strategic cost management program • Having the full support of top management. • Integrating information systems to streamline processes . • Implementing effective cross-functional teams.
- 7. SCM’S COMPOSITION • Strategic cost management is a blend of – Value chain analysis (how we organize our thinking about cost management?) – Strategic positioning analysis (what role does cost management play in the firm?) – Cost driver analysis
- 8. VALUE CHAIN ANALYSIS • Value chain concept is to detail the various stages of the product corresponding to a field of activity, from raw materials to after-sales service. This is the most cost effective routing relevant. • Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business • Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others ("out sourced").
- 9. Strategic positioning analysis • The concept of strategic positioning is about finding the answer to the question: what role cost management plays in an organization? • In the strategic cost management (SCM), the role of cost analysis differs depending on the method chosen by the company in the competitive struggle, namely: a) on one hand, a company can compete with low costs. b) on the other hand, a company can compete by offering superior products
- 10. Cost driver analysis • The third component of the strategic cost management is analysis the sources of cost • Grouping of cost sources into two categories, namely: -Structural - Sources of performance
- 11. Techniques that support strategic cost management • Calculation and management of activities • Determining cost attributes • Benchmarking • Monitoring the position of competitors • Costing competitors • Analyzing customers • Integrated performance measurement • Life cycle cost
- 12. Techniques that support strategic cost management • Cost of quality • Strategic approach to calculation • Strategic approach to pricing • Target cost system • Value chain analysis
- 13. Companies that offer SCM service • Wipro’s Strategic Cost Management exercise provides Cummins with a 30% reduction in material cost • Achieving Sustainable Growth through Strategic Cost Management :Accenture Cost Management Survey
- 14. CONCLUSION In today's era organizations are trying hard to reduce their costs. Ascertaining cost and finding out the ways to reduce it has become the main issue for the organizations By following certain steps and framework of cost management like SCM, an organization can effectively and efficiently implement some good strategies related to reduction of costs and that in turn will decide the future competitive advantage of the companies trying to maintain their market share and brand image in the tough competitive markets
- 15. REFERENCES • Article :“STRATEGIC MANAGEMENT OF COSTS - THE MAIN TOOL OF COMPETITIVE ADVANTAGE IN THE CURRENT ECONOMIC ENVIRONMENT “ By CORINA MICULESCU, MARIUS NICOLAE MICULESCU,. • Shank and Govindarajan’s “Strategic Cost Management”: The New Tool for Competitive Advantage. • http://www.wipro.com/Documents/resource-center/strategic-cost- management-for-cummins-indias-leading-manufacturer-of-diesel- engines.pdf • http://www.accenture.com/in-en/Pages/service-supply-chain- management-overview-summary.aspx
- 16. QUESTIONS?????
- 17. THANK YOU
Editor's Notes
- A cost driver is the unit of an activity that causes the change in activity's cost. Examples: In marketing, cost drivers are Number of advertisements, Number of sales personnel etc./ outperform its competitors./Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy.In today’s highly competitive environment, cost management has become a critical survival skill for many firms. But it is not sufficient to simply reduce costs; instead, costs must be managed strategically. Strategic cost management is the application of cost management techniques so that they simultaneously improve the strategic position of a firm and reduce costs. Strategic cost management can be applied in service and manufacturing settings and in not-for-profit environments.
- transparency to your costs for efficient business processes, departments, products and IT services/make timely and effective cost management decisions based on facts and data instead of just looking at an enormous number on a P&L statement/A good strategic cost management system will have economic modeling built-in so that organizations will know what the outcome of a cost or spend measure will produce/
- management must define the nature of the business and its courses of actions for planning, product development, and research and development./such as customer service, technical support, marketing, sales and manufacturing/are the activities that support the core activities. These include IT, human resources, general administration, accounting and finance.
- Steps for strategic cost management include reviewing the strategies of the business to develop a plan to encourage increased internal communication and identify any performance gaps./ Afterwards, management should train team members to implement the strategic management plan/. The management team should then dive into fact finding by gathering data, interviewing employees, conducting surveys and developing benchmarks./ The findings should then be analyzed and recommendations for changes to be made/. If changes are necessary, an employee should be made accountable for overseeing each change with responsibilities clearly defined, as well as for making sure there is a system in place for continuous improvement.
- Management should understand the importance of the program and how their role adds value, otherwise they may be reluctant and uncooperative during the implementation and continuous improvement stages./ Information systems are used for quickly gathering and analyzing data, as well as for making sure that the right information gets to the right people in a timely manner/. Using cross-functional teams is beneficial when cost drivers affect more than one department, as these departments must work closely together to regulate them.
- (1) Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); and (2) Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management/What activities a business undertakes is directly linked to achieving competitive advantage. For example, a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition. By contrast, a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities, or a reduction in the total amount of resources used./Value chain analysis can be broken down into a three sequential steps:(1) Break down a market/organisation into its key activities under each of the major headings in the model;(2) Assess the potential for adding value via cost advantage or differentiation, or identify current activities where a business appears to be at a competitive disadvantage;(3) Determine strategies built around focusing on activities where competitive advantage can be sustained
- : a) on the one hand, a company can compete with low costs. These strategies are based on the ASSUMPTION that the most competitive company has the lowest costs, in other words, minimizing company costs are based on its competitive advantages (attract customers by low prices). b) on the other hand, a company can compete by offering superior products (differentiation)..
- "structural sources" refers to the economic structure of the company and depend on: the scale,, experience, technology and production complexity. / scale, which sets how much should be investing in production, design and marketing;; experience which considers the number of times in the past has made the company what it wants to achieve at present; technology, that are considered technological processes used in each step of the value chain of the company; complexity, which refers to how wide is the range of products / services offered to customers.// The second cost source is formed by "sources of performance", which refers to the ability to perform well operations. Unlike structural sources for each "source of performance", "more" is always "better". Main sources of performance include: • workforce (labor force participation in continuous improvement activities); • total quality management (hopes and achievements in the quality of products and processes); • capacity utilization;
- he Accenture Cost Management Survey related to banks : • Managing aggressive cost reduction initiatives.• Developing and continuing sustainable cost management programs. • Understanding the short- and long-term effects of cost reduction initiatives and cost management programs. Accenture provides clients with a solid approach to cost reduction. deliver effective cost reduction programs and meet a range of IT and business process outsourcing needs.Accenture’send-to-end strategic cost management capabilities facilitate smart planning as well as efficient implementation and optimization of ongoing operations