Page 270 - DCOM206_COST_ACCOUNTING_II

Traditional Management
Value Chain analysis in the strategic Framework
Focus
Entire set of linked activities from suppliers to end-
Value-added
Perspective
use customers
Cost driver
Single cost driver (cost is
Multiple cost drivers
function of volume)
concept Internal Accounting External
- Structural drivers (e.g. scale, scope, experience,
technology and complexity
- Execution drivers (e.g. participative
Application at the overall management, total quality management and
firm level (cost-volume- plant layout)
profit analysis) A set of unique cost drivers for each value activity)
Unit 14: Emerging Concepts in Cost Management
Cost “Across the board” cost Value cost containment as a function of the cost
containment reductions drivers regulating each value activity.
philosophy Exploit linkages with suppliers.
Exploit linkages with customers Notes
Exploit process linkages within the firm “Spend to
save”
Insight for Somewhat limited Identify cost drivers at the individual activity level,
strategic and develop cost/differentiation advantage either
decisions by controlling those drivers better than competitors
by reconfiguring the value chain (e.g. Federal
Express in mail delivery and MCI in long distance
telephone)
For each value activity, ask strategic questions
pertaining to
- Make versus buy
- Forward/backward integration
Quantify and assess “supplier power” and “buyer
power” and exploit linkages with suppliers and
buyers.

Self Assessment
Fill in the blanks:

5. …………………… enhances profitability whenever the extra price the product commands
outweighs the added costs of achieving the differentiation.
6. Company efforts to achieve differentiation usually …………………… costs.

7. Core competencies are created by superior integration of technological, physical and
…………………… resources.



Caselet Value Analysis of Procter and Gamble

alue Chain Analysis of Procter and Gamble case study Value Chain Analysis
describes the activities that take place in a business and relates them to an analysis
Vof 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 outsourced.
It suggests that the activities of a business could be grouped under two headings: primary
activities and supporting activities.
Primary Activities: those that are directly concerned with creating and delivering a product
(e.g. component assembly).

1. Sourcing and Procurement (sourcing, supply planning, materials procurement):
Relating this model to P&G’s case study, it could be implied that P&G’s raw materials
are sourced and/or procured from all over the world, wherever it would be cost-
effective. It is thus no surprise that for a number of years it had focused on ways to
improve supply chain efficiency and costs. It now has a powerful industrial network
linking electronically to major suppliers and customers. This is to the extent that it
changed companies when efforts to reduce inventory levels only produced marginal
improvements. This led to the introduction of agent-based modelling.
2. Operations (assembly, branch operations): P&G’s operations had four business units:
health and beauty, babies, snacks and beverages, and fabric and home care. It offered
Contd...

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