Upload
ova
View
38
Download
0
Embed Size (px)
DESCRIPTION
Cost Analysis Techniques. Project. something related to purchasing how the purchasing function affects a company? how can a company improve its purchasing functions? possible forms a case study on a company literature review on a topic related to purchasing methodology - PowerPoint PPT Presentation
Citation preview
1
Cost Analysis TechniquesCost Analysis Techniques
2
ProjectProject
something related to purchasing something related to purchasing how the purchasing function affects a company? how the purchasing function affects a company? how can a company improve its purchasing how can a company improve its purchasing
functions?functions?
possible formspossible forms a case study on a companya case study on a company literature review on a topic related to purchasingliterature review on a topic related to purchasing
methodologymethodology management principlemanagement principle
3
Project ProposalProject Proposal
a 15-minute presentation a 15-minute presentation what is it about?what is it about? why is the project important? Useful? why is the project important? Useful?
Interesting? Interesting? how will you proceed?how will you proceed? what are the expected results? Expected what are the expected results? Expected
challenges? challenges? examplesexamples
4
OutlineOutline
collaborative cost management collaborative cost management total cost ownership modeltotal cost ownership model Kazuo Inamori’s idea on pricing and costing activity-based costingactivity-based costing value analysis and value engineerinvalue analysis and value engineering process mappingprocess mapping learning curvelearning curve quantity discountquantity discount
5
Collaborative Cost ManagementCollaborative Cost Management
6
Collaborative Approaches Collaborative Approaches to Cost Managementto Cost Management
target pricing: price acceptable by market, or price for competition searching for design methods, material, and production process to
match the target price reducing the gap between the target price and the actual price
provided by suppliers
cost-saving sharing: incentive offered to a vendor for cost saving
pre-requisites information sharing
vendor to buyer: details of production process, cost structure buyer to vendor: quantity, quality requirements, plan from near to
intermediate term agreement on cost saving sharing
example: data setting and calculation
7
Total Cost Ownership ModelTotal Cost Ownership Model
8
Total Cost Ownership ModelTotal Cost Ownership Model
costs throughout the life cycle of an item hidden cost in purchasing#1
payment method, inflation, life, salvage value, auxiliary charge, packaging, transportation, installation, service support, training, maintenance, service parts, etc.
example: cost structure and calculation
#1 Zeger Degraeve and Filip Roodhooft (2001) A Smarter Way to Buy, Harvard Business Review.
9
『『稲盛和夫の実学 経営と会計稲盛和夫の実学 経営と会計』』稻盛和夫的實學 稻盛和夫的實學 :: 會計與經營會計與經營
Kazuo Inamori's Pragmatic Studies: Management and Accounting
いなもり かずお稲盛 和夫Kazuo InamoriKazuo Inamori
10
Some Ideas in the BookSome Ideas in the Book
core of business: divine doctrine (天道)、 self-evident truth (公理)、 consensus and concord (人心)
cash-basis management: a grip on true cash flow of company
fair accounting: one-to-one correspondence between orders and items
muscular management: the cheapest method for a given task
perfectionism transparency amoeba management double-checking system with shared responsibility
11
Some Glimpses ofSome Glimpses ofPragmatic Studies: Management and Accounting
the difference between reality and accounting rules standard accounting rules for depreciation of
machines
difference between actual working life of a machine and its depreciation life by rules
12
Some Glimpses ofSome Glimpses ofPragmatic Studies: Management and Accounting
asset or cost? would equipment for production an asset or cost? example: a stall selling banana
a box of ¥300; a table cloth of ¥1,000; a stick of ¥200 buying 20 hands of banana, ¥50 per hand, selling at ¥150
per hand all sold out how much profit ¥2,000 or ¥500? TAX!!!
getting rid of excess production with small probability of future use
13
Some Glimpses ofSome Glimpses ofPragmatic Studies: Management and Accounting
difference among book profit, actual profit, and cash flow distortion of actual profit by accounting rules,
classification of asset cost, account payable and account receivable at different dates, etc.
14
QuestionsQuestions
Pricing and costing of an item are always important issues in purchasing. Discuss what you have learnt about these two issues from the book “Kazuo Inamori's Pragmatic Studies: Management and Accounting” by Dr. 稻盛和夫 .
15
Pricing and Costing Issues in Pragmatic Studies: Management & Accounting
overhead cost depreciation: difference in law and in reality
inventory and equipment as resource or liability obsolete inventory and equipment, especially for small
production lot
price setting first item price acceptable to market
then (material and production) cost matching with the price
16
Activity-Based Costing Activity-Based Costing
17
Activity-Based Costing (ABC)Activity-Based Costing (ABC)
assigning overhead of a product or service traditional cost accounting
based on fixed percentage of direct labor, direct material, or both direct labor and material
more overhead for high volume items
ABC trace the cause and effect of overhead
cost drivers: activities in the overhead for the product or service
18
Example#1
a factory producing only 2 products, L & S
1,500 pieces of L & 150 pieces of S
setups: 2 for each product, each of $900
direct material cost: L $2 and S $3 ignoring labor cost for simplicity
#1 許振邦( 2007)採購與供應管理
(originally from Raedels (2000)
19
Product L Product S Total
Production Qty 1,500 150 1,650
Direct Material $2 $3
Direct Labor
Total Direct Cost $3,000 $450 $3,450
Overhead
Setup 2 2 4
Cost/Setup $900 $900 $3600
Traditional Costing Method
Overhead cost/item $2.08 $3.14
Cost/Item $4.08 $6.14
ABC Method
ABC $1.2 $12
Cost/Item $3.2 $15
20
A Single-Item ExampleTraditional Costing (TC)
Cost per unit
Direct Material $21.00
Direct Labor $4.00
Manufacturing Overhead
Overhead Component
Burden Rate
Activity per Unit
Fixed $64.50/DLH × 0.4 DLH/unit $25.80
Variable $11.90/DLH × 0.4 DLH/unit $4.76
Manufacturing Overhead per Unit $30.56
Manufacturing Cost per Unit $55.56
Fixed Burden Rate (TC) = Estimated Annual Factory Fixed Manufacturing Overhead/Estimated Annual Factory DLH
= $967,500/15,000 DLH = $64.50/DLH
DLH = Direct Labor Hours
21
Activity-Based Costing (ABC)
Direct Material $21.00
Direct Labor $4.00
Manufacturing Overhead:
Activity Cost Driver Rate
Units of Cost Driver
# of Units
Fixed ($12.50/MH ×
9,800 MH) /10,000 $12.25
Inspection ($0.69/Insp. × 20,000 Insp.) /10,000 $1.38
Materials Handling ($0.60/lb. ×
45,000 lbs.) /10,000 $2.70
Machine Setup ($625.00/Setup × 8 Setups) /10,000 $0.50
Engineering Changes ($3,500.00/ECO× 3 ECOs) /10,000 $1.05
Manufacturing Overhead per Unit $17.88
Manufacturing Cost per Unit $42.88MH = Machine Hours; Insp. = Inspections; ECO = Engineering Change Orders
Fixed Rate (ABC) = Estimated Annual Factory Fixed Manufacturing Overhead / Estimated
Annual Factory MH = $500,000/40,000 MH = $12.50/MH
22
Value Analysis Value Analysis and Value Engineerinand Value Engineering
23
Value Analysis Value Analysis and Value Engineeringand Value Engineering
value analysis: 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 engineering: application of value analysis principles during product or service design
value = function/cost
24
Personnel in Value AnalysisPersonnel in Value Analysis
everyone: executive management, suppliers, everyone: executive management, suppliers, supply management, design engineering, supply management, design engineering, marketing, production, industrial/process, marketing, production, industrial/process, engineering, quality controlengineering, quality control
25
Typical Questions to Ask in VATypical Questions to Ask in VA
Does the use of this product contribute value to our customers?Does the use of this product contribute value to our customers?
Is the cost of the final product proportionate to its usefulness?Is the cost of the final product proportionate to its usefulness?
Are there additional uses for this product?Are there additional uses for this product?
Does the product need all its features or internal parts?Does the product need all its features or internal parts?
Are product weight reductions possible?Are product weight reductions possible?
Is there anything else available to our customers given the intended Is there anything else available to our customers given the intended use of the product?use of the product?
Is there a better production method to produce the item or product?Is there a better production method to produce the item or product?
Can a lower cost standard part replace a customized part?Can a lower cost standard part replace a customized part?
Are we using the proper tooling considering the quantities required?Are we using the proper tooling considering the quantities required?
26
Typical Questions to Ask in VATypical Questions to Ask in VA
Will another dependable supplier provide materials, components, or Will another dependable supplier provide materials, components, or subassemblies for less?subassemblies for less?
Is anyone currently purchasing required materials, components, or Is anyone currently purchasing required materials, components, or subassemblies for less?subassemblies for less?
Are there equally effective but lower cost materials available?Are there equally effective but lower cost materials available?
Do material, labor, overhead, and profit equal the product’s cost?Do material, labor, overhead, and profit equal the product’s cost?
Are packaging reductions possible?Are packaging reductions possible?
Is the item properly classified for shipping purposes to receive the Is the item properly classified for shipping purposes to receive the lowest transportation rates?lowest transportation rates?
Are design or quality specification too tight given customer Are design or quality specification too tight given customer requirements?requirements?
If we are making the item now, can we buy it for less? Or vice versa?If we are making the item now, can we buy it for less? Or vice versa?
27
Value Analysis ProcessValue Analysis Process
gather information
speculate
analyze
recommend and execute
summarize and follow up
28
Value Analysis ProcessValue Analysis Process
gather information what does this product do for the customer?what does this product do for the customer? why does a customer buy this product?why does a customer buy this product? primary vs. secondary functionsprimary vs. secondary functions name each function with a noun and a verbname each function with a noun and a verb collect detailed product informationcollect detailed product information
speculate wide-open, creative thinkingwide-open, creative thinking use brainstorming or other idea creating techniquesuse brainstorming or other idea creating techniques develop as many improvement ideas as possible without develop as many improvement ideas as possible without
judgmentjudgment
29
Value Analysis ProcessValue Analysis Process
analyze perform critical evaluation of ideas created in speculate stageperform critical evaluation of ideas created in speculate stage cost/benefit analysescost/benefit analyses feasibility assessmentfeasibility assessment do ideas address the original goals and objectives?do ideas address the original goals and objectives? general general specific specific
recommend and execute determine prioritiesdetermine priorities make proposal to management for approvalmake proposal to management for approval requires: requires:
motivation and creativitymotivation and creativity good communication skillsgood communication skills analytical thinking and product knowledgeanalytical thinking and product knowledge commitment and salesmanshipcommitment and salesmanship
30
Value Analysis ProcessValue Analysis Process
summarize and follow up implement implement
timing timing
budget budget
responsibilitiesresponsibilities
generate support from outside the teamgenerate support from outside the team
31
Example of Value AnalysisExample of Value Analysis
rescue of Nissan by Carlos Ghosn reduction of design cost by eliminating special parts or reduction of design cost by eliminating special parts or
componentscomponents
condition: without compromising quality, service, or condition: without compromising quality, service, or bothboth
headlightheadlight some components better than competitorssome components better than competitors
minor differences not picked up by eyesminor differences not picked up by eyes
reducing cost by 2.5% by changing reflectors and illuminatorsreducing cost by 2.5% by changing reflectors and illuminators
32
Example of Value AnalysisExample of Value Analysis
rescue of Chrysler by Lee Iacocca design of design of KK-car: no more than 176” to pack -car: no more than 176” to pack
more car in transportationmore car in transportation
33
Example of Value AnalysisExample of Value Analysis
experience of 4 first-tier suppliers of automobiles benefits and challenges to leverage their
suppliers’ expertise in collaborative VA
process
benefits and barriers
Hartley, J.L. (2000) Collaborative Value Analysis: Experiences from the
Automotive Industry, The Journal of Supply Chain Management, Fall, 27-32.
34
Process MappingProcess Mapping
35
Process Mapping Process Mapping
process: an outcome of a set of tasks, process: an outcome of a set of tasks, activities, or steps activities, or steps
expressing processes as their component expressing processes as their component parts or activities by a cross-functional parts or activities by a cross-functional teamteam
identifying and eliminating non-value-identifying and eliminating non-value-added activitiesadded activities
Process Mapping ExampleProcess Mapping Example
3636
Step # Activity Average Time Required1 Employee 1 physically places trailer at receiving dock 15 minutes
2 Employee 2 unloads the trailer with material handling equipment 30 minutes
3 Employee 3 checks load quantity from the trailer against shipping documents for accuracy 30 minutes
4Employee 4 acknowledges receipt of the material on the computer and prints control tickets to move material to required warehouse
locations60 minutes
5 Employee 5 attaches control tickets to individual loads 20 minutes
6 Employee 6 inspects inbound material 30 minutes
7 Employee 7 moves material to required warehouse location, freeing up the receipt line for another trailer 30 minutes
8Employee 4 files copy of shipping documents and forwards copies to
Accounts Payable at the end of the day (no physical movement required)
15 minutes
Total Average Time to Unload Trailer (excludes Step # 8) 215 minutes
Non-value-adding Value-adding
Process Mapping ExampleProcess Mapping Example
3737
Step #1 Step #2 Step #3 Step #4 Step #5 Step #6 Step #7
Hour 1 Hour 2 Hour 3 Hour 4
Non-value-adding Value-adding
• Remove non-value-adding steps
• Seek to combine other steps
38
Learning CurveLearning Curve
39
Learning CurveLearning Curve
reduction of production time due to repetition of task empirical evidence: learning rate as production
double
e.g., 85% learning rate: reduction of 15% direct labor as production double
40
Example on Learning CurveExample on Learning Curve
first order 200 pieces at $228/unit first order 200 pieces at $228/unit material $90; direct labor $50 (5 hours per material $90; direct labor $50 (5 hours per
unit, at $10 per hour)unit, at $10 per hour)
overhead at 100% of direct labor overhead at 100% of direct labor
profit margin 20%profit margin 20%
total cost per unit = ($90+$50+$50) = $190total cost per unit = ($90+$50+$50) = $190 price per unit = ($190)(120%) = $228price per unit = ($190)(120%) = $228
41
Example on Learning CurveExample on Learning Curve
price for another 600 pcs for 80% learning rate price for another 600 pcs for 80% learning rate
average time for 800 units = 5(0.8)average time for 800 units = 5(0.8)22 = 3.2 hr = 3.2 hr
total time for 800 units = (3.2)(800) = 2,560 hrtotal time for 800 units = (3.2)(800) = 2,560 hr
total time for the additional 600 units = total time for the additional 600 units = 2,5602,5601,000 = 1,560 hr1,000 = 1,560 hr
direct labor cost per unit = $(10)(1560)/600 = $26 direct labor cost per unit = $(10)(1560)/600 = $26
total cost per unit = ($90+$26+$26) = $142total cost per unit = ($90+$26+$26) = $142
price per unit = ($142)(120%) = $170.4price per unit = ($142)(120%) = $170.4
42
Quantity Discount AnalysisQuantity Discount Analysis
is a discount scheme reasonable? for better understanding of incremental price two types of quantity discount: prices at specific prices at specific
quantities vs. prices at quantity ranges quantities vs. prices at quantity ranges
quantity discount analysis for price breaks at quantity discount analysis for price breaks at specific quantitiesspecific quantities 1 unit @ $85 each 1 unit @ $85 each 3 units @ $80 each 3 units @ $80 each 6 units @ $70 each 6 units @ $70 each 10 units @ $69 each10 units @ $69 each
$85.00 $77.50 $60.00 $67.50
$85.00 $240.00 $420.00 $690.00
43
Quantity Discount AnalysisQuantity Discount Analysis
1 2 3 4
Number of units/order
1 3 6 10
Price/unit (quoted) $85.00 $80.00 $70.00 $69.00
Total price/order
Price difference between orders
Quantity difference/order
Price/unit/order quantity difference
$85.00 $155.00 $180.00 $270.00