Strategic Cost Management
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Transcript of Strategic Cost Management
MEANINGThe use of cost information made by management
to achieve the aims of a company
STRATEGIC COST MANAGEMENT is the overall
recognition of the cost relationships among the activities in
the value chain, and the process of managing those cost
relationships to a firm's advantage. Also known as Cost
Management Theory.
DEFINITION• Strategic cost management can be defined as"
scrutinizing every process within your
organization, knocking down departmental
barriers, understanding your suppliers'
business, and helping improve their processes"
Main Aim of Strategic Cost Management
To make sure that the business organization is able
to be successful in its endeavors and also grow.
Strategic cost management is also aimed at
sustaining the rate of growth that has been achieved
by a particular company
A very important part of the process of strategic
cost management is the proper usage of the
available resources.
Applications of Strategic Cost Management: There are three basic business areas where
strategic cost management can be applied.
Strategic Cost Management Framework:
The Strategic cost management framework
provides a clear plan of attack for addressing
costs and decisions that affect them. Following
are the three core components of this framework.
Strategic Management Programme Steps: SCM Programme includes following five
steps.
1. Focus:
Focus state starts with reviewing the different strategies
of the company. Reviewing the strategies will lead to
clear identification of performance gaps and this will help
to bridge the gap by improving targets already set
beforehand. Modifying the targets will lead to developed
plan of attack which will foster better internal
communication within the organization.
.
2. Planning and Training:
Planning plays a crucial role in implementing strategic cost
management programme. To implement the planning, a
manager should gather very efficient team members and
train them accordingly. Setting up of project management
structure will facilitate the implementation of strategic cost
management by clearly identifying the day to day activities,
steering guidance and offering ad hoc assistance
3. Fact Finding:
This stage includes the tasks such as data gathering,
conducting interview, developing benchmarks, conducting
customer surveys.
4. Analysis and Recommendations for changes:
Analysis of activities plays a crucial role in ascertaining the
cost of the company. It can be done by various strategic cost
management analytical tools viz. cost driver analysis, activity-
based costing, selective business process reengineering etc.
An action plan for proposed change should address the
following questions what, who, when how aspects of the
activities.
5. Implementation:
In implementation stage the first task to be done is to
define responsibilities and accountability of each
individual and controlling i.e. monitoring and
corrective action should be the taken at each stage of
programme. And this is how the continuous
improvement can be achieved. The third, fourth and
fifth sate in the above process indicates continuous
improvement.
Key Enablers That Facilitate Strategic Cost Management.
Analysis and Planning Enablers
Implementation Enablers
Analysis and Planning Enablers Top management support and sponsorship
Information systems
Identity of total cost drivers
Cost models
A strategic cost management plan
Effective cross-functional teams
Known Business strategies
Alignment of supply strategies with business strategies
Total cost approach to procurement
Balanced approach to sourcing
Performance measurements
Redefinition of procurement business processes
Maximize the leverage effect of purchasing
Implementation Enablers: Supply chain visioning
Diffusion of best practices in the organization
Strategic alliances
Planned change management
Supply base rationalization
Existence of shared supplier-customer
strategies
Minimization of transactional activities of
purchasing
Shifting of supply chain costs
Outsourcing
Use and Importance of Strategic Cost Management
The process of strategic cost management is very
crucial in the context of the present day business
enterprises. There are several ways in which the
process of strategic cost management can be used.
They may be mentioned as below:
Employing strategic resources
Making important business decisions
Examining strategic resources
Locating important resources