Cost Management-final 24
acquisition, editorial, production, distribution, sales and service. Support activities include new product and business development, technology assessment and development, human resource management and firm infrastructure. If strategy is seen i the pursuit of competitive advantages the link between the formulation of service strategy and operational service delivery is vital.
VALUE CHAIN ANALYSIS VS. CONVENTIONAL MANAGEMES ACCOUNTING
Information generated from the traditional management accounting systems, including cost accounting, is generally unsuitable for value chain analysis for a variety of reasons. Exhibit provides a comparison of value chain analysis and traditional management accounting.
Generally, traditional management accounting focuses on internal information. It often places excessive emphasis on manufacturing costs. It also assumes that cost reduction must found in the "value-added" process, i.e., selling price less the cost of raw material.
Using a value added approach can be misleading, since there are many other purchase inputs such as engineering, maintenance, distribution and service. The value-add-starts too late because it ignores linkages with suppliers, and stops too early because ignores linkages with customers.
The value chain approach encompasses external and internal data, uses appropriate a drivers for all major value-creating processes, exploits linkages throughout the value chain and provides continuous monitoring of a firm's strategic competitive advantage.
VALUE CHAIN VS. CONVENTIONAL MANAGEMENT ACCOUNTING
Value Chain Analysis
in the Strategic Framework
Entire set of linked activities from suppliers to end-use customres
Single cost driver
(cost is function of
Application at the overall firm level (cost-volume-profit analysis)
Multiple cost drivers
- Structural drivers (e.g. scale,
scope, experience, technology and complexity)
- Executional drivers (e.g. participative management and plant layout)
A set of unique cost drivers for each value activity.
“Across the board” cost reductions
View cost containment as a function of the cost drivers regulating each value activity.
Exploit linkages with suppliers
Exploit linkages with customers
Exploit process linkages within the firm “Spend to save”.
Insights for Strategic
Identify cost drivers at the individual activity level, and develop cost/ differentiation advantage either by controlling those drivers better than