SCM 371 FINAL EXAM VERIFIED ACCURATE STUDY
GUIDE
Goals of Strategic Cost Management - Answers - improve the strategic position of a firm
and reduce costs
Supply Chain Surplus perspective - Answers - seeing the entire value chain cost allows
for waste reduction across the system. The larger the surplus, the more benefits to
divide between the members
visibility to find improvements and eliminate waste essentially
Cost Models: Industry average - Answers - build cost from historical industry average
figures
breaking down costs based on historical averages to find out the costs of building and
operating
Cost Models: Parametric - Answers - regression model relationship between cost and
product parameters
used for more complex, assembled products
-variety of direct materials
-difficult to pin down labor
looks at cost as a function of specifications and functionality
allows sharing of cost across similar parts and new configurations
Cost Models: Bottom Up - Answers - Build up cost from detailed information on product
BOM and manufacturing process
needs a detailed understanding of the product and/or the process to produce it
"As designed vs As is" and "As is vs Should be"
things are not always done the way they were intended or how efficiently as they could
be
Cost Models: Process Map - Answers - Used symbols (Inventory, Inspection, Activity,
Delay and Movement; like in 372)
shows a details of the process as a whole and shows you were inefficiencies and poor
processes are.
Helps to reduce overall costs and lead times
, Total Cost of Ownership (TCO) - Answers - Maps the costs related to the supply of
products, purchasing focus, identify new sourcing and cost reduction opportunities, can
support supplier selection decisions
takes into account: purchase price, acquisition costs, usage costs, and end-of-life costs
Looks at pretransaction elements, transaction elements, and posttransaction elements
Overall it included all relevant costs into decision making by considering costs over time
and includes appropriate qualitative measures
Target Costing - Answers - the process of designing a product to meet a specific cost
objective
Traditional method: generate concept, design the product, figure out costs to produce,
set price
used to map out what each step will cost and determines profits compared to what the
market will pay
Cost drivers and cost elements - Answers - it explains why something happens
it traces costs based on cause and effect
helps to find the cost advantage between 2 sources
Value Analysis - Answers - examining all elements of a component, assembly, end
product, or service to make sure it fulfills its intended function at the lowest total cost
value = function/cost
asks questions of:
-can we eliminate a component? replace with a cheaper one? reduce labor? etc.
anything that can drive down costs without changing the product's functionality
Negotiation - Answers - It is the pre-eminent form of decision making in personal and
professional life
act/process of bargaining to reach a mutually acceptable agreement, finding the point
where the need to sell equals the need to buy
Negotiation process steps - Answers - 1. Planning and Preparation (who has the power,
your wants and needs, alternatives, and behaviors/negotiation style;
who/what/where/when/why)
2. Opening (initial offer, be honest, relax, start small/feel out opponent)
3. Explore (do not give all info out)
4. Exchange (POTE vs FOTE, usually use POTE because of lack of trust)
5. Agree (come to terms)
GUIDE
Goals of Strategic Cost Management - Answers - improve the strategic position of a firm
and reduce costs
Supply Chain Surplus perspective - Answers - seeing the entire value chain cost allows
for waste reduction across the system. The larger the surplus, the more benefits to
divide between the members
visibility to find improvements and eliminate waste essentially
Cost Models: Industry average - Answers - build cost from historical industry average
figures
breaking down costs based on historical averages to find out the costs of building and
operating
Cost Models: Parametric - Answers - regression model relationship between cost and
product parameters
used for more complex, assembled products
-variety of direct materials
-difficult to pin down labor
looks at cost as a function of specifications and functionality
allows sharing of cost across similar parts and new configurations
Cost Models: Bottom Up - Answers - Build up cost from detailed information on product
BOM and manufacturing process
needs a detailed understanding of the product and/or the process to produce it
"As designed vs As is" and "As is vs Should be"
things are not always done the way they were intended or how efficiently as they could
be
Cost Models: Process Map - Answers - Used symbols (Inventory, Inspection, Activity,
Delay and Movement; like in 372)
shows a details of the process as a whole and shows you were inefficiencies and poor
processes are.
Helps to reduce overall costs and lead times
, Total Cost of Ownership (TCO) - Answers - Maps the costs related to the supply of
products, purchasing focus, identify new sourcing and cost reduction opportunities, can
support supplier selection decisions
takes into account: purchase price, acquisition costs, usage costs, and end-of-life costs
Looks at pretransaction elements, transaction elements, and posttransaction elements
Overall it included all relevant costs into decision making by considering costs over time
and includes appropriate qualitative measures
Target Costing - Answers - the process of designing a product to meet a specific cost
objective
Traditional method: generate concept, design the product, figure out costs to produce,
set price
used to map out what each step will cost and determines profits compared to what the
market will pay
Cost drivers and cost elements - Answers - it explains why something happens
it traces costs based on cause and effect
helps to find the cost advantage between 2 sources
Value Analysis - Answers - examining all elements of a component, assembly, end
product, or service to make sure it fulfills its intended function at the lowest total cost
value = function/cost
asks questions of:
-can we eliminate a component? replace with a cheaper one? reduce labor? etc.
anything that can drive down costs without changing the product's functionality
Negotiation - Answers - It is the pre-eminent form of decision making in personal and
professional life
act/process of bargaining to reach a mutually acceptable agreement, finding the point
where the need to sell equals the need to buy
Negotiation process steps - Answers - 1. Planning and Preparation (who has the power,
your wants and needs, alternatives, and behaviors/negotiation style;
who/what/where/when/why)
2. Opening (initial offer, be honest, relax, start small/feel out opponent)
3. Explore (do not give all info out)
4. Exchange (POTE vs FOTE, usually use POTE because of lack of trust)
5. Agree (come to terms)
