Strategic Cost Management Notes

Strategic Cost Management
Chapter 11
The Honda Business Model for Suppliers
Six-year plan
100% understanding of all components of product cost
Lean supplier development concurrent engineering
Flawless new product launch
Communications
The Value Equation Definitions
Price analysis
Process of comparing supplier prices against external price benchmarks
Cost analysis
Process of analyzing each individual cost element that makes up final price
Total cost analysis
Applies value equation across multiple processes
Cost Management Approaches
Historical Cost Reduction Approaches
Value analysis/value engineering
Process improvements
Standardization
Improvements in efficiency using technology
Strategic Cost Management Processes
Value analysis/Value engineering
Team-based
Cross-enterprise
On-site supplier development
Process to accomplish supplier continuous improvement
Strategic Cost Management Processes
Cross-enterprise cost improvement
Joint effort
Costs identified
Cost drivers determined
Strategies to improve execution
Results review
Joint brainstorming
Establish list of value-add projects and execute
Strategic Cost Management Processes
Supplier suggestion programs
Motivate
Act on
Reward
Overall process
Supply chain compression
Reducing number of levels
Supplier consortiums
Managing Life Cycle Costs
Strategic Cost Framework
Generics
Competitive market with many potential suppliers
Emphasize total delivered price
No need for detailed cost analysis
Users order direct through supplier catalogs, p-cards, or e-procurement
Strategic Cost Framework
Commodities
High-value products or services
Competitive market situation
Traditional bidding approaches
Identify competitive pricing through price analysis
Standardized products
Strategic Cost Framework
Unique products
Few available suppliers
Relatively low value
Utilize reverse price analysis to determine whether price is “too high”
Try to move to