Strategic Cost Management

DEVIKA RAJAGOPAL

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.

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.

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.

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.

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.

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

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").

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

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

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

Techniques that support strategic cost management

• Cost of quality• Strategic approach to calculation• Strategic approach to pricing• Target cost system• Value chain analysis

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

CONCLUSIONIn 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

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

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