程序代写 EBU6609 Logistics and Supply Chain Management

EBU6609 Logistics and Supply Chain Management
EBU6609 Logistics and Supply Chain Management
TOPIC 9: COST MANAGEMENT MS. BING HAN
Move into the 2nd half…

Introduction to Logistics and Supply Chain Management
Supply Chain Organisation – Process thinking
Technology in Logistics and Supply Chain
Customer Fulfilment
Order Fulfilment Cycle ‐ Purchasing, Production and Logistics
Supply Chain Mapping
Core Competencies and Outsourcing
Environmental Scanning and Global Supply Chain
Cost Management in SCM
Inventory Management
Managing Uncertainties in the Supply Chain
Operational issues in the Supply Chain
Performance Measurement in the Supply Chain
People Management
Law and Ethics in SCM
Relationship Management
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EBU6609 Logistics and Supply Chain Management
Learning Objectives
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
Profit leverage effect of cost reductions.
Cost management in SCM is not only about cost.
Nature of the Buy.
Total cost of ownership (TCO) analysis.
different context
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
In business, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore.
In economics, a cost is an alternative that is given up as a result of a decision.
In accounting, costs are the monetary value of expenditures for supplies, services, labour, products, equipment and other items purchased for use by a business or other accounting entity.

EBU6609 Logistics and Supply Chain Management
Manufacturing Costs vs. Non‐manufacturing costs
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􏰀Manufacturing Costs are those costs that are directly involved in manufacturing of products. E.g. raw materials costs and charges related workers.
􏰀Direct materials cost
􏰀Direct labour cost 􏰀Manufacturing overhead cost
􏰀Non‐manufacturing Costs are those costs that are not directly incurred to manufacture a product, such as: salary of sales personnel and advertising expenses.
􏰀Selling and distribution costs 􏰀Administrative costs
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Opening Case:
Cost Reduction vs. Sales Increase
Lrrrrnenn hhhrrnrrn 􏰀Which one is important, cost
reduction or sales increase?
oA 5% change in cost cutting oA 5% increase in sales
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT

EBU6609 Logistics and Supply Chain Management
Cost Reduction vs. Sales Increase
socostsdownbetrl.co
Cost of Sales
Gross Margin *Operating Expense
Net Profit before Tax
Base % Case sales
$20,000 100.0% 12,000 60.0%
8,000 40.0% 2,000 10.0%
$6,000 30.0%
9,000 45.0% 2,000 10.0%
$7,000 35.0%
8,400 40.0% 2,000 9.5%
$6,400 30.5%
Costs % Sales %
Down sales Up sales
12,600 60.0%
*Assume no change in operating expenses is required to generate additional sales or cost reduction.
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Profit Leverage Effect
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
Measurable cost savings that don’t
hurt sales have a tremendous
impact on the bottom line.
↳ thepntnhaeh Profit impact of cost reduction is much greater than the impact of
increased sales.
The lower the average profit margin, the greater the impact.

EBU6609 Logistics and Supply Chain Management
Strategic Cost Management: Principles
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
Strategic cost management uses cost management techniques to reduce the organisations costs and improve profit while supporting its value proposition.
Three elements of strategic cost management:
{1.Supply Chain Analysis 2.Value Proposition Analysis 3.Cost Driver Analysis
1. Supply Chain -Analysis
Supply chain analysis is the examination of the management of the flow of information, inventory, processes, and cash flows from the earliest supplier to the ultimate consumer, including the final disposal process.
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT

EBU6609 Logistics and Supply Chain Management
A cynic is someone who knows the cost of everything, and the value of nothing.
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
2. Value Proposition
Value proposition analysis is the essence of a corporation strategy, determining how an organisation chooses to compete in its markets.
◦ Cost leadership 一、
Generic value propositions include:
◦ Technology leadership
◦ Differentiation strategies
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT

EBU6609 Logistics and Supply Chain Management
:Value Proposition: Example #1
Value Proposition: Example #2
Intel is putting the people and resources in place to sharpen our focus on the development of platforms that meet the demands of our customers and provide innovative and exciting new technologies for the marketplace.
– , former CEO of Intel
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
To use the Internet to transform e- commerce shopping into the fastest, easiest, and most enjoyable shopping experience possible.
– Amazon.Com
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EBU6609 Logistics and Supply Chain Management
Value Proposition Analysis
New approaches for achieving competitive advantage include:
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􏰀First to market provider: This was a very popular strategy in the late 1990s and continues to be an important approach to doing business today.
􏰀Service/solution provider: This has become one of the key ways for organisations to compete in this decade. Being a full-service solution provider requires a high level of understanding of customer needs and flexibility and willingness to meet those customer needs.
􏰀Technology Leader: This is a focused innovation approach, whereby the organisation competes by providing the latest and greatest technology to its customers.
Value Proposition Analysis
Companies may choose a combination of value propositions.
Different strategic business units within the same company may choose different value propositions.
Value propositions may change over the product life cycle.
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EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT

EBU6609 Logistics and Supply Chain Management
3. Cost Driver Analysis
􏰀Cost driver analysis identifies processes, activities, and decisions that actually create cost for the supply chain.
􏰀Cost drivers vary over time and among different products and services.
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
Level of outsourcing within a company. Companies that outsource may experience higher costs for additional services than if it had internal operations.
Use of nonstandard materials, components and parts. Custom items are more costly because of low economies of scale. Custom parts may have better performance or lower operating costs.
Scale of operations. Very large manufacturing operations must have high stable volume.
High level of finished goods product mix. The more options the organisation offers its customers, the more inventory it may have to carry, and the more flexible its production operations must be.
Generic Cost Drivers
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EBU6609 Logistics and Supply Chain Management
Cost Driver Analysis – Considerations
Cost drivers are not inherently good or bad.
Cost reduction strategies must analyse cost drivers in relation to their impact on the value proposition.
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
Cost-Reduction Considerations
For each product or service, how do you become aware of the value proposition in your organisation at any point in time?
What is the value proposition for your organisation, product, service?
Does the value proposition vary among business units and products or services?
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT

EBU6609 Logistics and Supply Chain Management
Cost-Reduction Considerations (cont’d)
If so, are you certain you have identified the right
value proposition?
• If so, are you certain you have identified the current or future value proposition?
• If not, what in what way will they be visible?
• Are these areas that the customer values?
• Will the impact be positive, negative or neutral?
Does the value proposition vary over time?
Will current/proposed activities be transparent to the customer?
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
Example – British Airways
􏰀Implement performance enhancing upgrades to the equipment to lower fuel costs, maintenance costs, noise level and improve range, contributing to lower cost and improved customer satisfaction.
􏰀Careful hiring and cross training of staff. 􏰀Customer self-ticketing.
􏰀Early adoption of ticketless travel.
􏰀Use differentiated pricing strategies to reduce costs and promote efficiency.
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EBU6609 Logistics and Supply Chain Management
Responsibility for Strategic Cost Management
Historically accounting and finance had responsibility for reporting and managing costs.
SCM requires a broader cost perspective. Corporate Response:
• Intel ‐ accounting and finance develop tools, supply managers are responsible for delivering cost savings
• HSBC ‐ internal consulting groups attack complex problems
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
Strategic Cost Management Tools
Cost analysis: including “should‐cost” analysis or zero‐based pricing, as well as analysis of service provider cost elements.
Price analysis: understanding the prices available in the competitive marketplace. TCO
Total cost of ownership: analysing the true cost of acquisition, use, maintenance and disposal of a good, service, capital equipment, or process.
Target costing: determining what the market will bear and working backwards to see how much you can afford to produce the product or service for, and still make a profit.
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EBU6609 Logistics and Supply Chain Management
Decision Classification
Once the process has been mapped and a good understanding of the system has been achieved, a decision matrix can be used to determine the appropriate cost management tool.
The decision matrix classifies decisions Nature of the Buy
according to:
Relationship with Supplier
≈Nature of the Buy
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
1. 2. 3. 4.
Is the cost of the item or service important, perhaps due to high volume?
Is the technology used by the supplier critical to the product’s image, performance or quality?
Does the supplier have a critical brand name or image that you can use to generate sales?
Is the technology used by the supplier critical to future products, line extensions, or the next generations of products?
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EBU6609 Logistics and Supply Chain Management
Nature of the Buy (cont’d)
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
Is the item critical to getting leverage with supplier for other buys?
Could the item create environmental or safety concerns?
Are there limited good sources available?
Is the item purchase ongoing?
Other issues that complicate the buying situation for your organisation at this time?
Supplier Relationships Sought
How long would we like to continue to do business with this supplier?
If we desire an on‐going relationship, would we like this supplier to be aware of our intentions? Would we like to share information related to the buy with the supplier?
Would we like the supplier to become involved in our product or service development?
Would we like the supplier to locate one or more of its employees at our facility?
Other issues that affect the nature of the desired relationship with this supplier at this time?
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT

EBU6609 Logistics and Supply Chain Management
Classifying Suppliers/Purchases
Classifications of Decisions 点Low Impact – low-cost commodity items; focus is on price
analysis/comparison
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Leverage – large purchases of items in competitive markets; focus is on cost analysis
Strategic Item – large purchases from important suppliers; focus is on continuous improvement
Critical Projects – large dollar volume infrequent purchase; focus is on life cycle cost
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EBU6609 Logistics and Supply Chain Management
Tool Selection
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Commodity Classifications
Classification
Large volume, many suppliers, not critical to our product
Company Fleet
Critical Project
One time buy with long-term cost implications, many suppliers available
Desktop Computers
Large volume, relatively undifferentiated, very competitive market
Facilities Management
Large volume, many suppliers, not critical to our product
Large volume, many suppliers, not critical to our product
Office Supplies
Low Impact
Relatively unimportant, easy to switch, many suppliers
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EBU6609 Logistics and Supply Chain Management
Commodity Classifications
Classification
Latest High-Speed Microprocessors
Large spend, affects product performance, few suppliers available, maybe critical to our leading-edge image
Outsourced Copy Center
Large volume, many competitive suppliers
Production Equipment
Critical Project
One time buy with ongoing impact
Telemarketing Center
Large volume, many comparable companies
Technical Support Call Center
Leverage/strategic
Large volume, limited qualified suppliers, may be critical to our firm’s image and customer service
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Activity-Based Cost (ABC) Management
Traditional cost accounting systems are used for internal reporting costs.
Ideally, cost accounting would like to use direct costing which determines cost based on actual expenditures.
Overhead, a pool of indirect costs, complicates direct costing.
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT

EBU6609 Logistics and Supply Chain Management
Traditional Cost Accounting 􏰀Traditional cost accounting aggregates all indirect expenses into a
classification called “overhead”.
􏰀Overhead is then allocated to production based on some benchmark
􏰀Changes to the benchmark activity may distort true cost performance.
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Traditional Cost Allocation System
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EBU6609 Logistics and Supply Chain Management
Activity-Based Cost
Management
􏰀Activity-based accounting provides a more accurate alternative to traditional cost accounting.
􏰀Activity-based accounting attempts to match indirect costs with the products or services that generate them.
􏰀Activity-based accounting allocates indirect costs based on the cost drivers that actually create them.
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EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
ABC Allocation
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EBU6609 Logistics and Supply Chain Management
Activity-Based Cost Management
Implementation of an ABC accounting system is a non- trivial event. Organisations may have to rethink:
◦ Pricing strategy
◦ Marketing strategy
◦ Manufacturing strategy
氵Total Cost of Ownership
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
…includes all relevant costs, such as administration, follow-up, expediting, inbound transportation, inspection, and testing, rework, storage, warranty, service, downtime, customer returns, and lost sales.
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EBU6609 Logistics and Supply Chain Management
Total Cost of Ownership (TCO)
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
◦ Attempts to look at the big picture, considering cost beyond that of the purchase price.
◦ a philosophy for understanding all relevant supply chain related costs of doing business with a particular supplier for a particular goods/service, or the cost of the process, e.g. supply chain design.
TCO – a metaphor
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
Source: Christopher, M. Ch2.

EBU6609 Logistics and Supply Chain Management
Total Cost of Ownership Analysis
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Step 1: Identification
of Benefits Sought
The first step in TCO analysis is to determine the benefits sought from the analysis. Reasons
to conduct TCO analysis include: 􏰀Performance measurement 􏰀Framework for cost analysis
1􏰀Benchmarking performance
􏰀More informed decision making
􏰀Communication of cost issues internally and with suppliers
􏰀Encourages cross-functional interaction
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EBU6609 Logistics and Supply Chain Management
Step 1: Identification of Benefits Sought (cont’d)
􏰀Support external teams with suppliers
􏰀 Better insight/understanding of cost drivers
􏰀Build a business case
􏰀 Support an outsourcing analysis
􏰀Support continuous improvement
􏰀 Helps identify cost savings opportunities
􏰀 Prioritise/focus your time on high potential opportunities
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Good Candidates for
TCO Analysis
Products and services that match the following criteria are good candidates for TCO Analysis:
1.The firm spends a relatively large amount of money on the item
2.The firm purchases the item with some degree of regularity, in order to provide some historical data, but more importantly, to allow opportunities to gather current cost information.
3.Purchasing believes the item has significant transaction costs associated with it that are not currently recognised.
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT

EBU6609 Logistics and Supply Chain Management
Good Candidates for
TCO Analysis (cont’d)
4. Purchasing believes that one or more of the currently unrecognised transaction costs is individually significant.
5. Purchasing has the opportunity to have an impact on transactions costs, via negotiation, changing suppliers, or improving internal operations.
6. Those purchasing/using the item will cooperate in data gathering to learn more about the item’s cost structure.
Step 2: Form a TCO Team
Once a project has been identified, a TCO team should be formed. Members should include purchasing, users, and any functional/technical experts.
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT
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EBU6609 Logistics and Supply Chain Management
Step 3: Identify Cost Drivers
􏰀Begin the analysis by expressly identifying potential costs by mapping the process flow for all aspects of the project.
􏰀From the flowcharts, brainstorm key cost drivers.
􏰀Gather cost data for all identified cost driver for each alternative.
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一Flowchart – Printer Example
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EBU6609 Logistics and Supply Chain Management
Flowchart – Printer Acquisition Example

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