Which of the following is not among the three 3 strategies prescribed by Strategic cost management

STRATEGIC COST MANAGEMENT

J.A. SIMBILLO

Strategic Cost Management (SCM) – Is the process through which activities or cost rivers are identified

and analyzed in order to lower cost and maximize product value so that an entity would have a strategic

competitive advantage over other players within an industry.

Three (3) generic strategies in order to achieve sustainable competitive advantage:

1. Cost Leadership – To provide the same or better value to customers at a lower cost than offered by

competitors. (Ex.Lowering production and maintenance cost of a product)

2. Differentiation – Strives to increase customer value by increasing what the customer receives. (Ex. Free

repair service on site)

3. Focus – A firm selects and emphasizes a customer segment in which to compete. (Ex. Market niche)

Terminologies Associated with Strategic Cost Management

Value Chain- A sequence of value-creating activities from purchase of raw materials to the disposal of

finished product by end-users or customers; the term “value” refers to the increase in the

usefulness of the product or service as a result of the customer consumption.

Product Life - A management technique used to identify and monitor costs of a product throughout

Cycle Costingits life cycle, which can be divided into the following stages:

Production viewpoint: 1) research 2) planning 3) design 4) testing 5) production 6)

logistics

Marketing viewpoint: 1) introduction 2) growth 3) maturity 4) decline

Total Quality- A management technique that integrates all organizational functions (marketing,

Managementfinance, design, engineering, production, customer service) to focus on meeting CUSTOMER

expectation and business objectives; TQM requires management to develop policies to

ensure that products and services exceed customer’s expectations; it is a formal effort to

ensure and improve quality throughout an entity’s value chain.

Continuous- The constant effort to eliminate waste, reduce response time, simplify the design of both

Improvementproducts and processes, and improve quality and customer service. Continuous

improvement can be done in two (2) ways: 1) Kaizen 2) Business process reengineering.

Kaizen- The gradual process of reducing costs during the manufacturing phase of an existing

product through small and continual improvements rather than through radical changes.

Reengineering, on the other hand, is a bit more drastic, often involving the complete

redesign of a process in hopes of finding a creative new way to accomplish an objective.

Reengineering often prescribes radical, quick, and significant change.

Business- The series of steps that are followed to carry out business activities.

Process

Business- Involves redesigning business process to reduce costs and eliminate inefficiencies and

Processopportunities for errors. Common features of BPR: 1) radical approach to

improvement

Reengineering 2) business process is diagramed in details, analyzed and completely redesigned 3)

simplification of business process 4) elimination of non-value-added activities.

Just-in-Time- JIT is a “demand-pull” system where inventories are purchased/produced only as needed

for production/sale, reduced to the minimum level and, in some cases, reduced to zero (Ex.

Elimination of non-value-added costs)

JIT Purchasing – Raw materials are received just in time for production; goods for sale are

received just in time for delivery or sale.

JIT Manufacturing – Manufactured materials are completed just in time for production;

products are completed just in time for delivery.

Benchmarking- Involves the following three (3) steps: 1) Identifying critical success factors 2)

Studying

the best practices of other firms based on identified success factors 3) Implementing

needed improvements to match or beat the performance of other firms.

Theory of- Considers the effective management of constraints as a key success in meeting business

Constraintsobjectives; TOC is considered as a process of continuous improvement.

What three themes are a part of strategic cost management?

What are cost management strategies?

What are the four tools of strategic cost management?

What are the components of strategic cost management?