Lecture 21 - SMA + SCM + Value chain analysis

Question 1

Describe Strategic cost management / SCM in general & the strategic management cycle

Answer 1

General:
- Managerial use of cost info explicitly directed at one or more of the four stages of SM-cycle
- More inclusive than MA

Stages of the strategic management cycle:
- Formulate strategies
- Communicate strategies
- Develop & carry out tactics to implement strategies
- Develop & implement control to monitor succes of implementation steps & strategic objectives

Three themes:
- Value chain analysis: Suppliers
- Strategic positioning analysis
- Cost driver analysis: Outsourcing?

Question 2

(?) Describe qualitative dimensions in comparing suppliers

Answer 2

• Non-financial indicators
• Indicators ranked & weighted
• Score used to select supplier

Question 3

(!!) Describe the problems of using traditional MA for strategy

Answer 3

Traditional MA:
- Short term
- Profit by accounting years
- Backward looking
- Look inward: Product & manufacturing cost
- Programmed
- Reactive
- Regular events & one-off decision

Strategic MA:
- Long term
- Look at competitive position over time
- Forward looking
- Inside info: Marketing & support costs, link between activities
- External info: Customers, suppliers & competitors
- Financial & non-financial measures
- Approximations sufficient
- Not programmed
- Proactive

Question 4

(!) Describe the different views on the relationship between strategy & MA

Answer 4

Competitor info:
- Cost structure
- Build, hold, harvest
- Market share
- Strategic change
- Strategic position
- Cost of barriers to entry: Economies of scale, differentiation, cost advantages, capital requirements, pricing, R&D excess capacity, vertical integration & sales networks
- SWOT
- Some info can be found public

____________

Strategic position:

General:
- Categories dont predict MCS

Porters generic strategies:
- Differentiators benefit from: Balanced performance measures, employee-based measures, benchmarking, formal long-range strategic planning
Cost leader benefit from: Traditional accounting & activity based techniques

Tradeoff: cost, quality & functionality:
- Functionality: Feedforward important: Target costing, value engineering & inter-organizational systems
- Costs: Feedback important: Product costing & VA
Quality: Kaizen costing & TQM

Miles & snow:
- Prospector: Innovator. Seek opportunities. Value long term plans. Dont use cost control
- Defender: Efficiency & quality. Cost data important
- Analyse: Prospector+Defender
- Reactor: Dont match environment

___________

The value chain perspective:
- Both firm, supplier & customer
- ABC to analyze link
- Life cycle important
- Competitive advantage to look at competitors value chain

Market oriented info:
- Customers desired attributes
- Taget costing
- Strategic princing: Defined by factors as competitors price reaction, price elasticity, market growth, economies of scale & experience

Question 5

(!!!!) Describe the “value chain” concept

Answer 5

General:
- Acknowledge importance of understanding suppliers & customers
- Require huge amount of deskwork
- Input from interviews, statistic banks or reports purchased on segment
- Outsourcing or insourcing
- Control of suppliers
- Cost of quality
- Technologies & capabilities
- Controlled by OBA or IOR
- Ref: TCO

__________

Value chain vs. value added:

General:
- Start too late: Lack supplier link
- Stops too soon: Lack customer link. Lack buyer power & life cycle cost. Miss competitive advantage

The value added:
- Internal to firm
- Maximize purchases vs. sales
- Lack awareness of supply chain
- Eg. Purchases, processes, functions, products & customers

The value chain:
- External to firm: Firm in chain
- Awareness of supply chain

__________

Methodology:
- Identify value chain stages
- Identify strategic options: Separate segments value chains
- Assign costs & revenue to stages
- Estim. market value transfer price
- Estimated asset investment

Question 6

(!) Describe the “Strategic positioning” concept

Answer 6

Cost leadership:
- Careful engineered standard manu. costs important
- Cost info to track manufacturing cost variances

Differentiation:
- Careful engineered standard manu. costs less important
- Cost info to monitor R&D productivity important

Question 7

(!) Describe profit variance analysis

Answer 7

General:
- Ref. Variance analysis
- Beyond internal calculations: Comparison to competitors
- Ref. Vagn Madsen. Different cost dim: Type, Department, Objective
- Favorable variance: Can be bad

Phase 1.
- Budget vs. actual numbers

Phase 2.
- Decompose effects from diff. key causal factors: Incl. market

Components:
- Identify key causal factors affecting profit
- Break down overall profit variance by key causal factors
- Focus on profit impact of variation i each causal factor
- Calculate specific separate impact for each causal factor: All other factors held constant
- Add complexity sequential: Begin at basic common-sense level
- Stop adding complexity when no added insight into causal factors

Phase 3.
- Look at specific products, effects & suggestions for improvement

Question 8

(!!!) Describe the cost driver analysis under strategic cost management / SCM

Answer 8

General:
- Volume not best CD: Yet american style
- Volume only usable CD when short term DM
- Driver depend on time
- Cost analysis framework for each specific cost driver
- Learning curve: Cumulative experience by relationship between output volume & cost over time
- Cost caused by many factors interrelated in complex way
- Ref. Zakken Worre
- Ref. Gutenberg

___________

Structural drivers:

General:
- Structural choices
- More NOT always better
- DONT scale with performance

Scale:
- Amount sold
- Fine tuning capacity
- Investment size
- Horizontal integration

Scope:
- Types sold
- Degree of vertical integration

Experience:
- Learning curve
- Ref. Kaizen & Target costing

Technology:
- Low cost vs. diff.. Process technology used at each step of value chain

Complexity:
- Wideness of product line. ABC

___________

Executional drivers:
- Executive skills
- Work force involvement
- Continuous improvement
- TQM
- Capacity utilization
- Product configuration
- Link w. supplier/customer: Ref. Value chain
- More always better
- Scale with performance
- Plant layout efficiency
- Product configuration

__________

Management accounting:
- Cost as function of one cost driver: Output volume
- Concepts: VC/FC, average/marginal costs
- Analyses: Cost-volume-profit, break-even, flexible budgets & contribution margin
- Draws on microeconomics

Question 9

(!) Describe the relation between CA, MA & strategic accounting / SA

Answer 9

Relations:
- MA > CA: Lack decision relevance
- SA > MA: Lack strategic relevance

Considerations:
- Good short-term opportunity may hurt strategic perspective
- Cost analysis should be seen in broader strategic context

Question 10

(?) Describe strategic management & strategic analysis

Answer 10

Strategic management:
- Cost data used for gaining sustainable competitive advantage

Strategic analysis:
- Real & perceived value of product
- Look at likely positioning & penetration it want achieved
- Flesh out likely results over time