STRATEGIC COST

MANAGEMENT

I Putu Sudana
Maksi FEB Universitas Udayana
Basic Concepts

The most important

strategic elements for a
firm are its long-term
growth and survival.
Basic Concepts
Strategic decision making
is choosing among alternative
strategies with the goal of selecting
a strategy [or strategies] that
provides a company with
reasonable assurance of long-term
growth and survival.
Basic Concepts
Strategic cost management
is the use of cost data to develop
and identify superior strategies that
will produce a sustainable
competitive advantage.
Basic Concepts
Competitive advantage
is creating customer value for the
same or lower cost than offered by
competitors or creating equivalent
customer value for lower cost than
offered by competitors.
Basic Concepts
Costumer value
is the difference between what a
customer receive [customer
realization] and what the customer
gives up [customer sacrifice].
Basic Concepts
The key to creating and sustaining
a competitive advantage is
STRATEGIC POSITIONING
[the process of selecting the
optimal mix of the three general
strategic approaches].
Basic Concepts
Three general strategies:
COST LEADERSHIP STRATEGY
is a strategy with an objective to
provide the same [or better] value
to customers at a lower cost than
offered by competitors.
Basic Concepts
Three general strategies:
DIFFERENTIATION STRATEGY
is a strategy with an objective to
increase customer value by
increasing what the customer
receives [customer realization].
Basic Concepts
Three general strategies:
FOCUSING STRATEGY
is selecting or emphasizing a
market or customer segment in
which to compete.
 Value-chain analysis
Choosing an optimal [or the most
advantageous] strategic position
requires managers to understand
the activities that contribute to its
achievement.
 Value-chain analysis
Value-chain analysis is [related to]
identifying and exploiting internal
and external linkages with the
objective of strengthening a firms
strategic position.
 Value-chain analysis
Exploiting internal linkages means
that relationships between activities
[design-develop-produce-market-
distribute-service] are assessed
and used to reduce costs and
increase value.
 Value-chain analysis
Exploiting external linkages means
managing linkages in industrial
value-chain [with suppliers and
customers] so that both the
company and the external parties
receive an increase in benefits.
Life-cycle cost management
Strategic cost management emphasizes
the importance of an external focus and
the need to recognize and exploit both
INTERNAL and
EXTERNAL
LINKAGES
Life-cycle cost management
LIFE-CYCLE COST
MANAGEMENT is a related
approach that builds a conceptual
framework which facilitates
managements ability to exploit
internal and external linkages.
Life-cycle cost management
The conceptual framework of
LIFE-CYCLE COST
MANAGEMENT follows an
interactive viewpoint along
product life-cycle, by integrating
marketing, production, and
consumable viewpoints.
Life-cycle cost management
LIFE-CYCLE COST
MANAGEMENT consists of actions
taken that cause a product to be
designed, developed, produced,
marketed, distributed, operated,
maintained, serviced, and disposed
off, so that life-cycle profits are
maximized.
Life-cycle cost management
LIFE-CYCLE COST MANAGEMENT
emphasizes cost reduction, not cost
control.
TARGET COSTING becomes a
particularly useful tool for
establishing cost reduction goals
during the design stage.
 Target Costing

Market research
determines the price Management computes
at which a new a manufacturing cost that
product will sell. will provide an acceptable
profit margin.

Engineers and cost analysts design a product

that can be made for the allowable cost.
 Target Costing

Price led Cross-functional

costing teams

Key
Life-cycle principles Value-chain
costs of target orientation
costing

Focus on Focus on
process product
design Focus design
on the
customer
 Value Engineering
and Target Costing
Target cost information
Product design
Product costs
Production processes

Value Engineering
Cost reduction
Design improvement
Process improvement
 Just-in-Time
Successful implementation of JIT has
brought about significant improvements
within an organization.
JIT can help add value by reducing waste
and cost accordingly.
Cost reduction is directly related to cost
leadership.
 What is Just-in-Time
Just-in-Time is an operating philosophy
whereby goods and services are
produced only when customers demand
them and in which short cycle times are
the critical process output
measurements.
 JIT Philosophy 1. Elimination of all
activities that do not
add value.
Just-in-Time is
2. Commitment to a
a philosophy
high level of quality.
that focuses
on the Include 3. Commitment to
undertaking of four continous
activities pivotal improvement.
immediately aspects
as needed or 4. Emphasis on
demanded. simplification and
increased visibility of
all activities that add
value.
 Traditional JIT System JIT & Materials
Delivery Delivery Movement

Materials handling

Quality inspection

Materials handling

Warehouse

Materials handling Materials handling

Production floor Production floor

 Just-in-Time system creates product and
service with four advantages:

Less Costly 1 2 Higher quality

Higher worker
satisfaction
4 3 Shorter cycle
time