A recent benchmarking study carried out interviews with 13 organizations in a variety of industries to identify current practices in strategic cost management. The population of companies was seg- mented based on whether their cost management practices were considered Basic, Moderately Advanced, Advanced, or Most Advanced. The key differences and transitional elements noted for firms in each category were documented and are highlighted in this executive summary. We focus here on the key steps required to progress from a Basic level of cost management, through different stages of maturity, and the core capabilities that must be developed through this evolution

Moving from Basic to Moderately advanced

Firms in the Basic category seeking to move to the next level were generally focused on estab- lishing the foundation, through a focus on getting back to the basics of spend analysis, data cleansing, and establishing simple governance structures for cost management. This includes the following actions:

GovernanceEstablish a Demand Management program to drive business unit leaders to create realistic budgets for spending, new product introductions, and forecasting of requirements to enforce a discipline of cost budgeting.

SystemsInitiate a corporate-wide cost systems effort focused on data cleansing of all historical pricing, spend AP data, and labor rates to establish the backbone of a cost management support system.

Supply Base ManagementEstablish a program for supply base consolidation, with specific targets defined by business, by category, and by platform.

Leadership and PlanningEstablish a corporate champion for cost leadership as a priority for competitive success across all key functional lines of business, with a gover- nance committee to drive oversight and support.

MetricsEstablish Key Performance Indicators for cost management alignments with fi- nancial projections, profit targets, line of business NPI projects, and market growth targets.

talentEstablish a network of key subject matter experts from across the organization with the requisite talent and skills, to build a cost management organization to provide

decision-support to NPI, sourcing, and make or buy projects.

NPIConduct a major audit of NPI processes to ensure that cost targets are tied prod-

uct design outcomes, with accountability for cost established for the NPI team.

Moving From Moderately to Most advanced

Firms in the Moderately Advanced category have established the core foundational elements re- quired to build a cost management culture and system and should seek to establish the next level of cost capability through the following activities:

GovernanceOrganizational realignment to ensure cost engineers are aligned by ma- terial or process globally, with specific roles, responsibilities, and accountability to busi- ness. Realignment to also create a joint material handling, packaging, procurement and logistics costing team tasked with building total cost models for all major point to point sourcing movements for major shipments around the globe.

SystemsAccurate spend analytics database with updated and historical spend by cate- gory, by part family, by supplier, and by business accessible by all relevant functional teams.

Supply Base ManagementSegmented supply base with strategic approved suppliers (established quality, cost, and technology), approved suppliers, and emerging suppliers.

Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

69681_ch11_ptg01_407-458.indd 454 07/11/14 7:48 AM

Chapter 11 Strategic Cost Management 455

Leadership and PlanningNPI planning team to establish projected key capacity bot- tlenecks and supplier cost overruns, based on NPI new product forecasted projections, data collected from impacted facilities, cost engineering leads, cost management team associates, and global sourcing category leads. This team should have a rolling five-year view on all upcoming new projects; highlight impacted areas, and key areas of immedi- ate and pending concern.

MetricsDocumented internal labor and material cost histories for all major facilities and product lines established and available through efforts of IT/team.

talentTalent development efforts to establish key engineering cost manager roles in procurement, including competitor teardown and should-cost modeling, cost target ob- jective setting, VA/VE, material and labor costing, and collaborative design.

NPIInitial engagement of strategic suppliers to attend NPI team meetings, with the objective of establishing consistent input and feedback for achieving cost targets.

Moving Froam advanced to Most advanced

Firms in the Advanced category have established a cost leadership organization, processes, systems for supporting cost decisions, and key performance indicators and are poised to engage on the next level of key activities to establish cost leadership in their industry:

GovernanceGlobal sourcing offices staffed with multilingual expats and local sourc- ing professionals aligned with NPI product requirements for supplier engagement in emerging countries.

SystemsCost management systems that drive part commonality, re-use, preferred suppliers, cost histories, and regular updates available to all NPI, sourcing, and manu- facturing/engineering teams across the globe.

Supply Base ManagementA set of long-term supplier partnerships with active in- volvement on all NPI teams, engaged in on-site technical and material management support for cost management in NPI and production.

Leadership and PlanningA documented category strategy and cost improvement plan for every part currently in production or going into production.

MetricsDetailed cost breakdowns, pricing histories, commodity and labor forecasts on all preferred suppliers with cost containment strategies available on a rolling three-year basis.

talentClear career path and leadership plan to attract the most highly talented indi- viduals into the cost engineering roles.

NPIDevelopment of Advanced Manufacturing Engineering teams that work in the sup- plier and technology community to track new developments, cost trends, and emerging technologies that need to be identified and nurtured for development. Active supplier development teams working at supplier locations through major NPI product ramp-up, launch, and post-launch.

Questions

1. Is the transformation of an organization to cost leadership a procurement responsibility, or a shared responsibility?