Better Business Decisions Using Cost Modeling: For Procurement, Operations, and Supply Chain Professionals
: Information is power in supply chain operations, negotiations, continuous improvement programs, and process improvement, and indeed in all aspects of managing an operation. Accurate and timely information can result in better decisions that translate into improvement of bottom line results. The development and effective use of cost modeling as a method to understand the cost of products, services, and processes can help drive improvements in the quality and timeliness of decision making. In the supply chain community an understanding of the actual cost structures of products and services, whether with new or non-partner suppliers, can facilitate fact-based discussions which are more likely to result in agreements that are competitively priced and with fair margins. Further, accurate cost models which are cooperatively developed between supply chain partners can form the basis for joint efforts to reduce non-value-added costs and provide additional focus towards operational improvement. While many organizations feel confident they have an understanding of the cost structure for products and services produced internally, cost modeling often uncovers areas where significant cost improvement can be obtained. Cost of quality is a particular type of internal cost model that analyzes the true costs associated with the production of less than perfect products and services. The development of a cost of quality model can provide insight into how products or services of higher quality can be produced at lower cost. This book provides the business student or professional a concise guide to the creation and effective use of both internal and external cost models. Development of internal cost models is discussed with illustrations showing how they can be deployed to assist in new product development, pricing decisions, make-or-buy decisions and the identification of opportunities for internal process improvement projects. The creation and use of external cost models are discussed providing insight into how their use can drive collaborative improvement efforts among supply chain partners, better prepare for price negotiations, and keep negotiations focused on facts rather than emotions--all while allowing for future discussions with preferred suppliers to focus on more strategic and operational improvement initiatives, and less on pricing. A number of detailed cost model examples are provided to educate on both how cost models are constructed, and to demonstrate how they have been effectively deployed
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alternate lamp analysis breakeven model calculated category manager chapter COGS COQ model corrugated boxes cost information cost of ownership create crossover chart current lamp direct material discussed dollar economic census data ensure enterprise resource planning equipment Example Figure fixed costs FMCSA framework session fuel surcharge gross profit identified improvement income statement increase industry influence diagram internal cost models learning rate linerboard and medium LMN Energy material cost model material/fuel codes NAICS code negotiations net present value opportunity cost paperboard percentage petroleum coke procured material cost procured service cost product or service production volume products and services purchase quality costs revenue service cost model SGSG&A specific spreadsheet stepped breakeven store operations manager strategic sourcing manager supplier costs Supply Chain Professionals TCO model total cost U.S. Census Bureau understand utilized Value stream mapping variable cost wages XYZ Apparel