Cost Management-final 4
Low-Cost Advantage : A firm enjoys a relative cost advantage if its total costs are lower than the market average. This relative cost advantage enables a business to do one of two things ; price its product or services lower than its competitors' in order to gain market share and still maintain current profitability; or match with the price of com' . products or services and increase its profitability.
Many sources of cost advantage exist; access to low-cost raw materials; innovative process technology; low-cost access to distribution channels or customers; and superior operating management. A company might also gain a relative cost advantage by exploiting economies of scale in some markets.
The relationship between low-cost advantage and differentiation advantage has been illustrated in Diagram 2.
COMPETITIVE ADVANTAGE THROUGH LOW COST AND / OR DIFFERENTIATION
Stuck –in –the-
Relative Cost Position
Superior relative cost position otters equivalent customer value for a lower price. Superior relative differentiation position offers better customer value for an equivalent price.
Organisations which fails to gain competitive advantage through low cost or superior differentiation, or both, are "stuck-in-the-middle." For instance, several American bicycle m. found themselves in this position during 1980s. These companies lacked a cost advantage and failed to foresee the emerging mountain bike market. By contras^, Cannondale captured market share after introducing its large-diameter frame bicycle.
THE ROLE OF THE MANAGEMENT ACCOUNTANT
The management accountant in the past were considered an expert on cost analysis; cost estimation; cost behaviour; standard costing; profitability analysis by product, customer or distribution channel; profit variance analysis; and financial analysis.
Today, management accountants are expected to make use of activity-based costing, benchmarking, re-engineering, target costing, life-cycle costing, economic value analysis, total quality management and value chain analysis for decision making.
Value chain analysis requires a team effort. Management accountants of today has to collaborate with engineering, production, marketing, distribution and service professionals to focus on the strengths, weaknesses, opportunities and threats identified in the value chain analysis results.
By championing the use of value chain analysis, the management accountant enhances the firm's value and demonstrates the value of the finance staff to the firm's growth and survival.