scm_ch08

scm_ch08 - Supply Chain Management: From Vision to...

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Supply Chain Management: From Vision to Implementation Chapter 8: Strategic Supply Chain Cost Management
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2 Chapter 8: Learning Objectives 1. Explain what strategic cost management is a port in the company and SC success. 2. Apply the three elements of strategic cost management to an analysis within your organization. 3. Explain the relationship between process mapping in strategic cost management.
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3 Chapter 8: Learning Objectives 1. Describe the various types of price and cost analysis strategies applied today. 2. Select the right type of cost analysis tool to best support a particular SC design situation. 3. Develop and explain the total cost of ownership analysis.
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4 Profit Leverage Effect Measurable cost savings that don’t hurt sales have a tremendous impact on the bottom line. Profit impact of cost reduction is much greater than the impact of increased sales. The lower the average profit margin, the greater the impact.
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5 Cost Reduction vs. Sales Increase (1000’s) Base Case % sales Costs Down % sales Sales Up % sales Sales $20,000 100.0% $20,000 100.0% $21,000 100.0% Cost of Sales 12,000 60.0% 11,000 55.0% 12,600 60.0% Gross Margin 8,000 40.0% 9,000 45.0% 8,400 40.0% *Operating Expense 2,000 10.0% 2,000 10.0% 2,000 9.5% Net Profit before Tax $6,000 30.0% $7,000 35.0% $6,400 30.5% * Assume no change in operating expenses is required to generate additional sales or cost reduction.
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6 Strategic Cost Management Principles Strategic cost management uses cost management techniques to reduce the organizations costs and improve profit while supporting its value proposition. Three elements of strategic cost management: 1. Supply Chain Analysis 2. Value Proposition Analysis 3. Cost Driver Analysis
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7 Supply Chain Analysis Supply chain analysis is the examination of the management of the flow of information, inventory, processes, and cash flows from the earliest supplier to the ultimate consumer, including the final disposal process.
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8 Value Proposition Analysis Value proposition analysis is the essence of a corporation strategy, determining how an organization chooses to compete in its markets. Generic value propositions include: Cost leadership Differentiation strategies
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9 Value Proposition Intel is putting the people and resources in place to sharpen our focus on the development of platforms that meet the demands of our customers and provide innovative and exciting new technologies for the marketplace. – Paul Otellini, Intel CEO
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10 Value Proposition To use the Internet to transform e-commerce shopping into the fastest, easiest, and most enjoyable shopping experience possible. -Amazon.Com
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11 Value Proposition Analysis New approaches for achieving competitive advantage include: First to market provider : This was a very popular strategy in the late 1990s and continues to be an important approach to doing business today. Service/solution provider:
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This note was uploaded on 01/13/2011 for the course IT 230 taught by Professor Staff during the Spring '08 term at Purdue.

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scm_ch08 - Supply Chain Management: From Vision to...

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