|Cesare Mainardi, managing director of Booz & Company, details how executives should cut costs–but often dont.|
In times of uncertainty, organizations irrespective of size, are faced with the challenge to improve or maintain their margins, by focusing on operational cost efficiencies, cost analysis and profitability analysis.
Akzo Nobel’s margin management programs were implemented throughout the company with a strong focus on cost management, and cash management, by closely monitoring working capital. Akzo Nobel also uses technology and innovation as key differentiators.
Oskomera, a steel fabricator, worked on redesigning their business processes using lean production principles.
The lean principles that Oskomera applied were:
NOTE : When using an integrated approach, such as Activity Based Costing that works on causal relations to allocate costs, changes in the level of activity will not lead to a proportionate change in total costs.This in turn calls for the need to analyze costs according to a cost hierarchy, focusing at four levels: unit, batch, product, company:
* Unit: Unit level costs increase in proportion to the number of units produced (e.g. labour hours)
Finally, is worth noting that Kaplan differentiates between the cost of resources supplied and the cost of resources used: (the cost of resources supplied = the cost of resources used + the cost of unused capacity.)
In this video Gerard Chick author of Case-Study 2.14 ‘Strategic Cost Management’ from the Case-Study Collection considers the merits of the Benefits of Strategic Cost Management utilized by Honda’s management team.