Mas-d-strategic-cost-management.docx

MAS D: STRATEGIC COST MANAGEMENT STRATEGIC COST MANAGEMENT (SCM)  is the process through which activities or cost drivers are identified and analyzed in order to lower costs and maximize product value so that an entity would have a strategic competitive advantage over other players within an industry. Three (3) generic strategies in order to achieve sustainable competitive advantage: 1. COST LEADERSHIP  to provide the same or better value to customers at a lower cost than offered by competitors (example: a company might redesign product so that fewer parts are needed, lowering production costs and costs of maintaining the products) 2. DIFFERENTIATION  strives to increase customer value by increasing what the customer receives (example: a retailer of computers offers an on-site service, a feature not offered by other rivals) 3. FOCUS  a firm selects and emphasizes a customer segment in which to compete (i.e., market niche) TERMINOLOGIES ASSOCIATED WITH STRATEGIC COST MANAGEMENT VALUE CHAIN - a sequence of value-creating activities from purchase of raw materials to the disposal of finished products by end-users or customers; the value refers to the increase in the usefulness of the product or service as a result of the customer consumption. PRODUCT LIFE CYCLE - a management technique used to identify and monitor costs of a product throughout its life cycle, which can be decided into the following stages:  Production viewpoint: 1) research 2) planning 3)design 4)testing 5)production 6)logistics  Marketing viewpoint: 1) introduction 2) growth 3)maturity 4) decline TOTAL QUALITY - a management technique that integrates all organizational functions (marketing, finance, design, engineering, MANAGEMENT (TQM) production, customer service) to focus on meeting CUSTOMER expectation and business objectives; TQM requires management to develop policies to ensure that products and services exceed customers expectations; it is a formal effort to ensure and improve quality throughout an entitys value chain. CONTINUOUS - the constant effort to eliminate waste, reduce response time, simplify the design of both products and processes, and IMPROVEMENT improve quality and customer service. Continuous improvement can be done in two ways: 1) kaizen 2) business process reengineering. KAIZEN - the gradual process of reducing costs during the manufacturing phase of an existing product through small and (gradual improvement) continual improvements rather than through radical changes. Reengineering, on the other hand, is a bit more drastic often involving the complete redesign of a process in hopes of finding a creative new way to accomplish an objective. Reengineering often prescribes radical, quick, and significant change. BUSINESS PROCESS - the series of steps that are followed to carry out business activities.

BUSINESS PROCESS - involves redesigning business process to reduce costs and eliminate inefficiencies and opportunities for errors. Common REENGINEERING (BPR) features of BPR: 1) radical approach to improvement 2) business process is diagrammed in details, analyzed and completely redesigned 3) simplification of business process 4) elimination of non-value added activities. JUST-IN-TIME (JIT) - JIT is a demand-pull system where inventories are purchased/produced only as needed for production/sale, reduced to minimum level and, in some cases, reduced to zero (i.e., elimination of non-value added costs).  JIT Purchasing  raw materials are received just in time for production; goods for sales are received just in time for delivery or sale.  JIT Manufacturing  manufactured materials are completed just in time for production; products are completed just in time for delivery. JIT TRADITIONAL/CONVENTIONAL Demand-pull system Push-through system Insignificant Significant inventories inventories Small supplier base Large supplier base Long-term supplier Short-term supplier contracts contracts Cellular structure Departmental structure Multi-skilled labor Specialized labor Decentralized services Centralized services High employee Low employee involvement involvement Facilitating Supervisory management style management style Total quality control Acceptable quality level Value-chain focus Value-added focus BENCHMARKING - involves the following three (3) steps: 1) Identifying critical success factors 2) Studying the best practices of other firms based on identified success factors 3) Implementing needed improvements to match or beat the performance of other firms. THEORY OF - considers the effective management of constraints as a key to success in meeting business objectives; ToC is considered CONSTRAINTS (ToC) as a process of continuous improvement. MULTIPLE CHOICE QUESTIONS 1. Which of the following is NOT among the three (3) strategies prescribed by Strategic Cost Management? a. Focus c. Market segmentation b. Cost leadership d. Product differentiation 2. The value chain is the sequence of business functions in which a. Value is deducted from the products or services of an organization b. Value is proportionately added to the products or services of an organization c. Products and services are evaluated with respect to their value to the supply chain d. Usefulness is added to the products or services of an organization

3. R&D, production and customer service are business functions that are all included as part of a. Value chain c. Marketing b. Benchmarking d. Supply chain 4. Which among the following is a value-added activity? a. Processing c. Storing b. Moving d. Inspecting 5. There are four broad classes of activities in the value chain. Research and development is part of a. Activities related to getting ready to make the product b. Activities related to making the product c. Activities related to dealing with the customer d. Other activities that support the first three activities 6. There are four broad classes of activities in the value chain. Storing work in process is part of a. Activities related to getting ready to make the product b. Activities related to making the product c. Activities related to dealing with the customer d. Other activities that support the first three activities 7. There are four broad classes of activities in the value chain. Billing activity is part of a. Activities related to getting ready to make the product b. Activities related to making the product c. Activities related to dealing with the customer d. Other activities that support the first three activities 8. There are four broad classes of activities in the value chain. Accounting activity is part of a. Activities related to getting ready to make the product b. Activities related to making the product c. Activities related to dealing with the customer d. Other activities that support the first three activities 9. The unyielding and continuing improving effort by everyone in the organization to understand, meet and exceed the customer expectations and uses front-line workers to solve problems systematically. a. Just-in-time manufacturing c. Total quality management b. Conventional manufacturing d. Total quantity management 10.Which of the following is at the core of the definition of total quality management (TQM)? a. Customer surveys c. Employee satisfaction b. Continuous improvement d. Supplier inspections 11.The primary reason for adopting TQM is to achieve a. Greater customer satisfaction c. Reduced delivery charges b. Greater employee participation d. Reduced delivery time 12.TQM should be viewed as a. Management entered and technology driven b. Customer centered and employee driven c. Policy centered and procedure d. Goal centered and standard driven 13.A characteristic of TQM is a. Quality by final inspection c. Education and selfimprovement b. Management by Objectives (MBO) d. On the job training by other workers 14.In which of the following organizations does total quality management (TQM) work best? a. Hierarchal c. Teams of people from the same specialty

b. Specialist working individually d. Teams of people from different specialties 15.Implementation of total quality management (TQM) in a firm: a. Takes from three to five years b. Must follow a rigid, predetermined process to be successful c. Involves some lower-level managers and all senior executives d. Is a bottom up process, with management involved only in the final phase 16.A traditional quality control process in manufacturing consists of mass inspection of goods only at the end of a production process. A major deficiency of this traditional quality control process is that a. It is expensive to do the inspections at the end of the process b. It does not focus on improving the entire production process c. It is possible to rework defective items d. It is not 100% effective 17.Under a total quality management (TQM) approach, a. Measurement occurs throughout the process and errors are caught and corrected at the source b. Quality control is performed by well-trained inspectors at the end of production process c. Upper management assumes the primary responsibility for the quality of the products and services d. A large number of suppliers are used in order to obtain the lowest possible prices 18. Which is NOT listed as a practice that successful TQM firms use to ensure having quality suppliers? a. Forming long-term relationships with suppliers as working partners b. Setting measures that truly reflect the needs and expectations of suppliers c. Reducing the supplier base d. Selecting suppliers based on price and their capability and willingness to improve quality, cost, delivery, flexibility, and for their dedication to continuous improvement 19.The process of instituting procedures and then obtaining feedback to ensure that all parts of the organization are functioning effectively and moving toward overall company goals. a. Decentralization c. Planning b. Benchmarking d. Control 20.A tool that compares how tasks are performed internally against the best practices of industry leaders is a. Process value analysis c. Benchmarking b. Reengineering d. None of the choices 21.It is an approach to developing new ways (i.e., radical redesign) to perform existing activities is called a. Process value analysis c. Benchmarking b. Business Process Reengineering d. None of the choices 22.In Business Process Reengineering (BPR), the main objectives are to simplify and to possibly eliminate a. Value-added activities c. Constraint b. Non-value-added activities d. Non-constraint 23. Which of the following statements is TRUE regarding BPR? a. It requires a change in the companys products b. It involves redesigning business and eliminating value-added activities c. It involves completely redesigning business processes and it is often implemented by outside consultants

d. It empowers front-line workers to solve problems and it focuses attention on solving problems rather than on finger-pointing 24.BPR a. b. c. d.

Affects employees in a way that boosts their morale Is less likely to result in employee resistance than total quality management Is more likely to result in employee resistance than total quality management Does not affect employees, hence, no resistance from employees is expected when it is applied 25. Which of the following quality tools is another term for gradual yet continuous improvement? a. Theory of constraints c. Six-sigma b. Kaizen d. Lean manufacturing 26. The just-in-time manufacturing (JIT) system is also called the a. Job in training system c. zero cost system b. Job in transit system d. zero inventories system 27. JIT purchasing can be used by a. Retailers c. Manufacturers b. Wholesalers d. All of the choices 28.In JIT, the flow of goods is controlled by a pull approach. It means that: a. Work is initiated only in response to customer orders b. Customers are pulled to buy more units to reduce the companys inventory c. Warehouses should always be full to be sure that customer demands are always met d. Production officers see to it that there is always something to do keep everyone busy 29. All of the following are characteristics of a just-in-time manufacturing environment. EXCEPT: a. Frequent deliveries of materials c. Little or no inventory of finished product b. Manufacturing cells d. Longer production cycle 30. Just-in-time purchasing (demand-pull system) requires a. Smaller and more frequent purchase orders b. Larger and more frequent orders c. Smaller and less frequent purchase orders d. Larger and less frequent purchase orders 31. A just-in-time manufacturer is more likely than a conventional manufacturer to a. Receive more frequent deliveries of materials b. Hold large inventories to serve as buffers c. Spend less money on advertising d. Need workers with fewer skills 32. A conventional manufacturer is more likely than a just-in-time manufacturer to a. Have a short production cycle c. Hold large inventories to serve as buffers b. Produce goods in small batches d. receive more frequent deliveries of materials 33.Which of the following is a characteristics of just-in-time (JIT) inventory management systems? a. JIT users determine the optimal level of safety stocks b. JIT is applicable only to large companies c. JIT does not really increase overall economic efficiency because it merely shifts inventory levels further up the supply chain d. JIT relies heavily on good-quality materials 34. All of the following are potential financial benefits of JIT, EXCEPT

a. Reducing the risk of obsolescence b. Reducing manufacturing lead time c. Lower investments in inventories d. Lower investments in plant space for inventories 35. Which of the following do just-in-time (JIT) operations try to eliminate? a. Discretionary fixed costs c. Avoidable costs b. Non-value-adding costs d. Direct costs 36.Well-implemented just-in-time production and purchasing techniques a. Result in large stockpiles of inventory to keep production running b. Strengthen a companys ability to complete in the marketplace c. Increase a reliance on long-term customer forecasts d. Reduce a companys competitive edge 37. Under Theory of constraints (ToC), a. No company has constraints b. Improvements efforts should be focused on non-constraints c. Efforts that would improve output of a workstation shall be focused on the constraints d. A company that wants to improve its operation shall focus on workstation with the highest production capacity SUGGESTED ANSWER: 1. c 11. a 2. d 12. b 3. a 13. c 4. a 14. d 5. a 15. b 6. b 16. b 7. c 17. a 8. d 18. c 9. c 19. d 10. b 20. c

21. b 22. b 23. c 24. c 25. b 26. d 27. d 28. a 29. d 30. a

31. a 32. c 33. d 34. a 35. b 36. b 37. c