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Methods of Supply Chain Cost Management

by:CNS     2021-07-15
Methods of supply chain cost management 2021-06-20 13:20:16 There are many cost management methods currently applied to supply chain management, among which the most widely studied methods are: target costing, activity-based costing, and life cycle Cost method. (1) Target cost method. The target cost method is a cost management method developed by Toyota in the 1930s. This method has been widely adopted. The purpose of the target cost method is to transform customer needs into mandatory competition constraints for all related processes. Guangzhou Freight Company uses this to ensure that future products can create a target cost method. The process mainly includes three parts: In the first part, Market-driven costing is to determine the permitted cost of a product. This is the highest cost that can be incurred when the product is sold at the expected sales price and a certain profit level is guaranteed. The permitted cost is obtained by subtracting the target profit from the target sales price; the second part is to determine the target of the product level that can be completed Cost; The third part is to set the target cost of each component included in the product. In the target cost, the target cost of the component level obtained from the supplier determines the supplier's selling price, which points out the direction for the focus of the supplier's cost reduction work. For this reason, the buyer should cooperate with the supplier to carry out cost management work, and the target cost has been reached. Target cost method has truly become a cross-enterprise cost management technique. Its cross-enterprise meaning is mainly embodied in the following three aspects: First, the buyer must set a target cost at the component level that can be completed. If the supplier believes that the target cost at the component level cannot be achieved, it will reduce their enthusiasm for efforts. Second, the buyer must choose an appropriate method to apply the target cost method to the supplier. The core of this question is whether they give suppliers enough freedom in setting cost reduction goals and how to accomplish them. Third, the buyer can set up an incentive system to stimulate the supplier's innovation ability and increase the cost reduction rate. (2) Activity-based costing. Activity-based costing takes operations as the costing object, based on the idea that operations consume resources, and products and services consume operations. The goal of Guangzhou-Chengde logistics is to allocate resource consumption caused by cost drivers to products or services more reasonably. Companies can use the activity-based costing method to identify those operations that are not related to the utility of the end customer, and reduce costs by reducing or completely eliminating such non-value-added operations, so that the company can better respond to market demand and enhance its own Competitiveness. Supply chain costs mainly include direct costs, indirect costs and transaction costs between companies incurred within the company. Therefore, supply chain activity-based costing should be based on the perspective of the supply chain and analyze indirect costs based on operations and transactions to optimize the total cost of products or services. The indirect cost within the enterprise is analyzed based on operation as the cost driver, while the indirect cost between enterprises (transaction cost) needs to be analyzed based on various transaction behaviors between enterprises, such as negotiation, buying and selling. (3) Improve cost method. The cost improvement method is the most important cost constraint mechanism for each enterprise in the supply chain during the product production stage. The cost improvement method is also a feed-forward cost management method. It sets product cost reduction goals through the expected cost reduction needs, rather than reacting when the cost has exceeded the standard. Moreover, by improving the implementation of the cost method, the pressure of cost reduction can continue throughout the entire product life cycle. Limiting the cost improvement method to a certain enterprise will ignore the potential of further cost savings for upstream and downstream enterprises in the supply chain. The cross-organizational application of cost improvement method among enterprises in the supply chain is to explore all the cost reduction opportunities through a large number of information sharing and cooperation mechanisms. The improved cost method can be regarded as an extension of the target cost method in the production stage. The application of the improved cost method in cross-organization cost management has some similarities with the target cost method. First, improving the cost method is also a cost management method that requires the cooperation of buyers and suppliers. In the production process, all member companies in the supply chain will implement cost improvement methods together. This kind of cooperation allows companies to achieve cost savings that cannot be achieved when they perform cost management alone. The cross-organizational application of the Guangzhou-Yanbian logistics improvement cost method can be initiated by buyers or suppliers. For example, buyers can appoint design engineers or provide technical support to suppliers; suppliers can seek new component design methods with the cooperation of buyers. Second, the 'price transmission mechanism' is still effective in improving the cost method. The purchaser's improvement cost management system can also pass market pressure to its suppliers by determining the supplier's improvement cost reduction goal. Therefore, it is very important to formulate reasonable cost reduction goals, otherwise the 'price transmission mechanism' will lose its effectiveness. However, in the cost improvement method, the purchaser is not aimed at reducing the cost of a particular product, but stipulates a uniform cost reduction ratio for all outsourced components. Therefore, the improvement of supply chain cost management is related between enterprises, rather than the end-to-end connection between related enterprises like target cost management.
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