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37 Cards in this Set

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Strategic Cost Management
is the use of cost data to develop and identify superior strategies that will produce a sustainable competitive advantage.
Strategic Decision Making
the goal is to select a stategy to assure long-term growth and survival . . . the key to achieving this goal is to gain a competitive advantage.
Competitive Advantage
is creating better customer value for the same or lower cost than offered by competitors or creating equivalent value for lower cost than offered by competitors.
Customer value
the difference between what the customer receives and what the customer gives up.
What are the Three strategies to increase customer value to achieve competitive advantage
1. Cost Leadership: provide the same or better value to customers at lower cost than offered by competitors. Increases customer value by minimizing customer sacrifice.

2. Differentiation: provide something to the customers that is not provided
by competitors. Strives to increase customer value by increasing what
the customer receives.

3. Focusing: selecting or emphasizing a market or customer segment in
which to compete.
Strategic Positioning
is the process of selecting the optimal mix of these three general strategic approaches.
Value chain
is the linked set of value-creating activities
What are the links of value-creating activities?
Internal linkages, External linkages,
Internal linkages
are relationships among activities that are performed within a firm’s portion of the value chain
External linkages
describe the relationship of a firm’s value chain activities that are performed with its suppliers and customers.
There are two types of external linkages:
1. Supplier linkages
2. Customer linkages
what are the two types of Organizational activities:
Structural, Executional,
Structural activities
activities that determine the underlying economic structure of the organization
Executional activities
activities that define the process and capabilities of an organization. Executional activities are “how things are done”. They are related to continuous improvement
Operational activities
day-to-day activities performed as a result of the structure and processes selected by the organizations. (Operational cost drivers are those factors that drive the cost of operational activities.)
Cost reduction
is the emphasis of life-cycle cost management
Product life cycle
= the time from conception to abandonment
Revenue-producing life
time a product generates revenue for a company
Consumable life
is the time a product serves the needs of a customer.
Marketing viewpoint
describes the sales pattern as the product passes through the Introduction, Growth, Maturity and Decline stages. This is a revenue-oriented viewpoint. The emphasis is on revenue behavior.
Production viewpoint
emphasizes costs associated with the activities performed in the stages of the life cycle, for example, research & development, production, logistics. The focus is on cost reduction, not cost control.
The consumable life-cycle viewpoint
This is from the customer perspective. It is the total cost of ownership, the purchase price, operating costs, maintenance costs, and disposal costs. It has a customer-value oriented viewpoint.
Target cost
= sale price – desired profit

This is an effective tool in life cycle management because cost reduction is the goal. Target costing is especially useful in establishing cost reduction goals in the design stage.
Three cost reduction methods are typically used are
Reverse engineering, Value analysis, Process improvements
Reverse engineering
closely analyzing competitor products in an effort to discover more design features
Value analysis
attempts to assess the value placed on various product functions by customers. If the price the customer is willing to pay for a function is less than the cost, then the function is a candidate for elimination.
Process improvements
both production and marketing processes are sources of potential cost reductions.
JUST-IN-TIME (JIT)
Technically, the term Just In Time (JIT) refers to systems designed to reduce inventories. Common business practice has expanded the concept to refer to a broad spectrum of actions managers take to improve business processes.
a pull approach
The pull is exerted from the final workstation which is responding to customer orders. The final workstation requests from the preceding, workstation the exact amount of parts needed over the next few hours and only that amount of parts and materials are provided. The same type of exact request works its way back up the production line.
the traditional push approach
In a conventional system, each workstation completes its processing on a batch of units and pushes the units to the next workstation regardless of whether that workstation is ready to receive them. This results in partially completed inventory building up throughout the system.
There are five (5) key elements involved in the successful operation of a JIT system.
1-Limited Number of Suppliers, 2-Improving Plant Layout,
3-Reduced Setup Time,
4-Zero Defects and JIT (Total Quality Control (TQC),
5-Flexible Work Force
Limited Number of Suppliers
Dependability of suppliers is vital in a JIT inventory system. There must be a close working relationship with a few suppliers to guarantee prompt and dependable service.
Improving Plant Layout
Workstations in a product flow line (the physical path taken by a product through the manufacturing process) are grouped together so that work in process is not shifted from place to place, but rather moves from start to finish in a direct, focused manner. This type of plant layout is to as a focused factory.
Benefits Of Improved Plant Layout

1. A plant with multiple flow lines saves costs in two (2) ways:
A. It minimizes material handling costs
B. It eliminates partially completed inventory waiting for the next step in the production process.

2. Increases throughput, that is the total volume of production through the facility during a period.

3. Decreases throughput time, that is the time it takes to turn raw materials into finished goods. Throughput time is synonymous with cycle time.

4. Workstations on the flow line may consist of two or more different machines clustered together that are needed to complete one part or component of the finished product. This clustering of machines at a single workstation is called a cell.
Reduced Setup Time
Setup time refers to the time involved with changing equipment, moving material about, and getting forms and jigs in place to accommodate the production of a different item. By reducing setup time (and thereby making it easier to move from the production of one item to another) a company is able to avoid long production runs that create inventory that must wait before further processing at the next workstation.
Ways to reduce setup time:

1. each product has a dedicated flow line(s) thereby eliminating setup time

2. employee training and awareness of the need to complete setups quickly

3. automation of the production processes - this includes:

a. use of numerical control (NC) machines, i.e. machines
controlled by a computer that has been programmed to guide the equipment through all the steps necessary to complete some portion of the final product. To setup for a different product, one need only change the program in the computer.

A manufacturing cell consisting of all NC machines is called an island of automation.

b. use of a flexible manufacturing system (FMS) i.e. when the cells on a product flow line are linked together with an automated material-handling system and the flows between cells are controlled by a central computer. This allows the entire flow line to be flexible in that the FMS master computer can be programmed for rapid setup in various cells as changes are made from one product to another.

c. use of computer integrated manufacturing (CIM) ... the goal is to integrate an organization's business functions with its manufacturing functions. FMS is a subset of CIM.
Zero Defects and JIT (Total Quality Control (TQC)
TQC means no defects can be allowed in parts and materials received from suppliers, in work in process, or in finished goods. Because inventories are minimal throughput production, a defective parts can shut down a product line. The problem with a defective product in the hands of a customer is obvious. To maintain TQC, there is continuous monitoring, throughout the production process. Any worker can stop the product flow to correct a defect.
Flexible Work Force
Workers must be multiskilled. They must be able to operate and maintain various equipment and develop teamwork skills.
What are the Benefits of a JIT system
1. increased worker productivity
2. decreased setup time
3. decreased total production time
4. TQC reduces waste
5. reduced inventories of all types
6. working capital tied up in inventory is released for investment elsewhere
7. inventory storage areas are freed for more productive uses
8. defects rates are reduced
Expansion of the JIT Concept

The JIT philosophy says that wherever possible in an organization, management should focus its efforts on simplification and on elimination of waste.
Three (3) Ideas Pivotal to the JIT Philosophy
1. All activities that do not add value to a product or service, should be eliminated. Activities that add cost to a product but do not add market value to the product are called non-value-added activities. Value-added activities are costs associated with the actual processing of goods that increase the market value.

2. A commitment must be made to achieve and maintain high levels of quality in all aspects of a company's activities.

3. A commitment must be made to continuous improvement in all of a company's activities and in the usefulness of data generated for its management.
Continuous improvement refers to the constant pursuit of ever greater value being provided for the customer.