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Aiming at the imperfections in the knowledge and practice of cost management of most enterprises at present, this paper puts the new theory of resource analysis in the MBA course - value chain analysis. Applied to cost management, so as to analyze the structural influencing factors of cost behavior, and rebuild the value chain by controlling it, and reduce the cost from a strategic height, the article also analyzes how enterprises can obtain the durability of cost advantage.
Keywords Cost Management Value Chain Analysis Reconstructing the Value Chain
Most enterprises are prone to fall into a variety of misunderstandings in cost management, such as managers pay more attention to the control of production costs while ignoring the control of marketing costs, service costs, and logistical costs; pay attention to the composition of the enterprise's operating process of each individual activity for the cost of analysis, but neglected to grasp the link between the activities of the high level to look at corporate costs;3 Highly to examine the cost of enterprises; 3, the cost analysis method is overly dependent on accounting methods and systems, but not included in the accounting scope of the lack of analysis of the cost of behavior and so on.
The MBA program of Harvard Business School in the United States puts forward a new theory on enterprise resource analysis - value chain analysis, that is, the use of systematic methods to examine the activities and interrelationships of enterprises, so as to find resources with competitive advantage. In the author's opinion, the essential goal of enterprise cost management should be to obtain a lower cumulative cost than that of its competitors through enterprise behavior and win the cost advantage. Therefore, I would like to examine enterprise cost from the perspective of enterprise behavior rather than accounting methods with the help of value chain theory. This paper intends to describe the following aspects: 1, identify the enterprise's own value chain, and use it to aggregate costs and apportion assets; 2, analyze the structural influencing factors of the enterprise's cost behavior from the perspective of the value chain; 3, reduce the enterprise's costs from a strategic height by controlling various influencing cost factors or reconstructing the enterprise's value chain; 4, maintain and consolidate the enterprise's cost advantage over a long period of time to gain the durability of the cost advantage. The cost advantage will be sustained over a long period of time.
I. Using value chain analysis to determine the value activities related to cost management The value activities of the enterprise can be divided into five main activities and four auxiliary activities. The five primary activities include (1) input activities, such as those related to receiving, storage, and allocation; (2) production operations, i.e., activities related to transforming inputs into final products; (3) output activities, such as transportation and storage of finished products, customer contact, and order processing; (4) sales activities, designed to make customers aware of and purchase goods, such as advertising, promotion, and the costs of the sales organization; (5) service activities, including training, repair, maintenance, parts renewal, etc., aimed at increasing the added value of the product.
The four auxiliary activities include (1) purchasing activities, which refer to the purchase of activities used for all inputs to the value chain of the enterprise, such as the purchase of raw materials and supplies, and the purchase and construction of fixed assets, etc.; (2) technological development activities, where all value activities involve a technological component, such as the development of new products, technological innovation, trademarks, patents, know-how, and software development, etc.; and (3) human resource management activities, which include the employees' recruitment, training, development, incentives, etc.; (4) enterprise infrastructure, referring to both plant facilities, machinery and equipment, and other hardware, but also includes a large number of software such as general management, planning, finance, legal, quality management, public **** relations.
There are other classifications of value activities of the enterprise, such as according to the relationship of the products produced, can be divided into three kinds: 1, direct activities, refers to the activities that directly create value for the buyer, such as supply, production, sales and other activities; (2) indirect activities, refers to ensure that the continuation of the direct activities to become possible, this type of activities are wide-ranging, multi-content, easy to ignore; (3) quality assurance activities, refers to those who activities that ensure the quality of the enterprise's various value activities, such as trademark registration, hiring legal counsel, mergers and acquisitions, and other asset reorganization activities. This classification has practical significance for cost management, it is worth noting that the cost of indirect activities and quality assurance activities, in the enterprise's cost management has not yet been properly recognized and sufficient attention, this paper will focus on.
Two, to the enterprise value chain to collect and share the cost from the cost management point of view, the enterprise's value activities that cost behavior. Managers are able to capture the major components of an organization's costs, while those value activities that currently account for a smaller proportion but are growing and can ultimately change the organization's cost structure are easily overlooked, and applying value chain analysis to cost management may overcome this.
The cost of each value activity of an enterprise includes:
1, purchased operating input costs: raw materials, reserve materials, and low-value consumables invested for production; 2, human resource costs: expenditures incurred by an enterprise to acquire or reset human resources, such as the cost of human resource acquisition (recruiting, hiring, and placement, etc.), and the cost of human resource development (on-the-job education, job training, off-the-job training, further training, etc.), human resources maintenance costs (wages, bonuses, benefits, medical care, housing, social insurance, etc.), human resources separation costs (retiree wages and benefits, job vacancy loss, loss of efficiency before and after job alternation); 3, capitalized costs: refers to expenditures for more than one year or more than one year of one business cycle of the benefit period. Such as fixed assets (buildings, machinery and equipment, labor tools, means of transportation, etc.), intangible assets (patents, trademarks, etc.), deferred assets (business start-up registration fees and other preliminary costs, decoration costs, improvement expenditures on leased equipment, etc.).
In cost management, the enterprise must apportion the above costs to the value activities of the value chain, the purpose of apportionment is to produce a value chain reflecting the distribution of costs, and to compare the distribution of costs of each value activity, so as to find out the breakthroughs that can be used to improve costs.
How to apportion costs? The general principle is that the costs of purchased operating inputs and human resource costs should be apportioned to the activities in which they are incurred; capitalized costs are apportioned to the activities that use them, control them, or have a greater impact on their use. Three methods of apportionment are usually used: 1, when the causal relationship between costs and enterprise value activities can be identified directly, they can be apportioned directly, such as production costs; 2, when a direct relationship cannot be identified, but it can be recognized that it will generate future benefits, they can be apportioned according to the characteristics of the assets, such as depreciation of fixed assets according to the period of benefit, and amortization amounts of intangibles, etc.; and 3, when there is neither a causal relationship, nor an expectation of its benefits, the Costs are immediately recognized as expenses in the current period, such as interest, business hospitality, litigation costs, etc. are immediately calculated as current expenses.
The above cost-sharing should be a fiscal year or operating year for the period boundary, it is different from the accounting bookkeeping apportionment, this cost-sharing data is mainly for strategic decision-making reference, so the accuracy requirements can be adjusted in accordance with the principle of cost-effectiveness, appropriate.
Through cost aggregation and apportionment, it can be found that the cost of indirect activities and quality assurance activities that have not been emphasized in the past and the cost of the total cost of the proportion of the total cost of far more than the original estimate of the managers, and with the modern enterprise facing the challenges of the knowledge-based economy, the investment in information technology will be increased, the establishment of the network system, automated systems and decision support systems, so that the indirect cost of the total cost has an increasing proportion of the total cost of the cost of the cost of the cost of the cost of the indirect activities. There is a tendency for non-direct costs to account for an increasing proportion of total costs.
Third, the structural factors affecting the cost of the enterprise enterprise is the product of the environment, the enterprise's external and internal environment in the many factors in the value of the enterprise's behavior, and in turn affect the cost of the enterprise. The interaction between these factors determines the value behavior of the enterprise; but should also see and no one factor can be the only factor in the level of enterprise cost, that is, enterprise cost is a multifunction. Analyzing the factors that influence the value activities of a company helps the company to determine its cost behavior from the source and to have a deep understanding of how to change its cost behavior.
Combined with the basic theories of Management, Financial Management, Production Management, Marketing and other disciplines, as well as the cost management practices of many enterprises, the following structural factors affecting costs can be found:
First, the choice of enterprise scale. Expansion of scale leads to specialization and collaboration, technical management level and other factors of production to achieve a new configuration ratio balance, stimulate new productivity, significantly reduce costs. However, when the scale exceeds a certain degree, will lead to the complexity of coordination and management efficiency, the natural conditions of production tend to deteriorate, that is, economies of scale beyond the critical point, transformed into a scale of diseconomies. Enterprises have to adjust the scale to the appropriate level to obtain the lowest possible cost.
Secondly, the cascading land rent effect. Geographic location is clearly an independent factor affecting firms' costs. Geographic location leads to differences in labor, management, energy, infrastructure, raw materials, consumer demand for products, transportation modes, communications, wage levels, tax burdens, and so on. A geographically well-located firm has the potential to achieve excess profits over the average profits of society. There are external reasons for a firm's geographic location in terms of its history, industry size, national policies, etc., but this is not the same as saying that a firm can do nothing in this regard. Enterprises can redesign the location of their value-added activities, or even relocate infrastructure, revitalize and replace real estate, and other methods to reduce costs.
Third, the learning knowledge effect. Enterprises into an industry, over time, enterprises will be in the production of decision-making and planning, organization and scheduling, improve labor efficiency, improve the operational process, asset utilization efficiency, etc., to find and learn to numerous cost reduction mechanisms and experience, the direct result of this learning activity is the unit cost of the enterprise's products down. This is the learning knowledge effect, or knowledge spillover effect. This effect can make the enterprise through learning to obtain cost reduction experience, but also at the same time because of its own knowledge in the industry as a whole, the spillover, but also the loss of cost advantage of the persistence of the enterprise.
Fourth, the degree of utilization of production capacityThe degree of utilization of production capacity depends not only on environmental conditions and the investment behavior of competitors, but also can be put under the control of the enterprise itself through the choice of its production and marketing strategy. At different stages of each production cycle, the enterprise's capacity utilization is more affected by seasonal, cyclical and other factors that lead to fluctuations in demand, and the level of control over changes in such utilization determines the extent to which it is reasonable to cut or increase costs.
Fifth, integration and linkages.
The issue of integration relates to the firm's attitude toward external collaboration, i.e., the strategy of captive or outsourcing. Too much self-manufacturing, will make the direction of the enterprise business to the vertical development, but will cause the enterprise resource dispersion, the operation of the increasingly condensed, slow response to the market; and too much outsourcing, will make the enterprise overly dependent on the outside world, the development of their own specialization. Both situations are not conducive to enterprise cost reduction. Proper use of consolidation can avoid utilizing market costs that are higher than captive costs, enable enterprises to avoid suppliers with strong bargaining power, and bring about the economics of joint operations. Firms sometimes have to de-consolidate, at which point they should consider whether the move is detrimental to the firm's strategy, in addition to whether it facilitates cost reduction. The linkage problem is comprised of internal linkages within the firm's value chain and vertical linkages within the marketing channel. Activities in the value chain are interconnected, and changing the way one of them is implemented can sometimes produce unexpected cost reduction results.
Four, the search for cost advantage of the strategic approach to cost advantage enterprises to obtain cost advantage of two ways: First, for the above proposed structural factors affecting the cost, according to the principle of importance of the value of the activities that account for a significant proportion of the total cost of the activities, control or change the structural factors affecting them, to obtain cost advantage; second is to re-create the original value chain, the use of a more efficient way to design, production and marketing products. selling products.
(I) Control of structural factors affecting costs1, choice of size. A graphic can be used to illustrate cost reduction through choice of scale. Figure 1 illustrates the cost structure of three different sizes, A, B and C represent the average cost curves of small, medium and large-scale enterprises, respectively, according to the market demand to choose the size. If the demand for Q1, the size of the selection of A, because at this time the average cost of A1 is lower; similarly, when the demand is no Q3, choose the size of B, the average cost of A2 is lower. And C represents the size, only when the demand is quite large is desirable. For example, Shanghai Hualian Supermarket's chain of stores below 35 is a loss, when the development of 35 to 70 is a slight profit, has developed to 165, cost margin of 12% . 2, control location factors. This factor in the organization of the enterprise production space, raw materials and product transportation distribution on the cost impact. Selection of geographic location should be considered: close to the origin of raw materials; adequate energy supply; water supply is guaranteed; suitable weather; relatively low transportation costs; distribution of human resources; close to the consumer market; the influence of social and cultural practices; the distribution of teaching and research institutions.
3, learning knowledge management. The learning curve effect makes it necessary for enterprises to strengthen learning management. Enterprises should be combined with the competitive strategy to develop learning strategy objectives, strategic knowledge assessment to determine the knowledge and technology replacement cycle, to determine the organizational structure to support the learning strategy, learning into the evaluation of the contract and as a basis for personnel evaluation, the validation of the internal training program and learning network efficiency and quality, to determine the entry point to catch up with competitors and the benchmark point. For knowledge overflow to maintain the necessary vigilance and preventive measures, the use of legal means to protect intellectual property rights. Enterprises should make full use of the international Internet INTERNET, familiar with the world's financial market, capital market, talent market, the operation of the market, the development trend of the same industry, and have a certain degree of foresight on a variety of opportunities and crises. Shenzhen Huawei Hi-Tech Company is good at analyzing changes in the world market, and take certain precautions, in the financial turmoil a few years ago, the damage was minimal.
4, balanced production operations and regulate market demand fluctuations.
Enterprises can be controlled from the production and sales of two links. Production process control aims to prevent and stop the production of deviations from the target to ensure that the production of balanced and stable. Balance line method, chart control method, production card method, etc. have been proved to be effective in cost saving. In sales, demand fluctuations are regulated to a certain extent through planning, such as expanding products into cyclical and seasonal products that are not obvious, researching customers with stable demand, withdrawing from off-season seizures during peak seasons, and squeezing competitors into segments with large demand fluctuations.
5, identify the links and appropriate integration of cost factors within the value chain is often interlinked, enterprises can accurately recognize this link and use, is to change the cost situation. Such as enterprise quality cost is composed of preventive inspection cost and product loss cost of two parts, the former cost increase, product quality up, the loss of cost will be reduced, and vice versa, the former small latter will be large, only the minimum sum of the two, is the best quality cost. Similarly, the cost of inventory and the cost of holding cash can be controlled. Integration and dissolution, both have the potential to reduce costs, systematic, comprehensive and appropriate use of integration is very necessary. Lenovo Computer Corporation has opened more than 200 parts factories and more than 20 assembly and debugging centers in Dongguan, Guangdong Province, with obvious cost advantages, which is a good example of proper understanding and handling of integration and linkage.
(2) Reengineering the value chainReengineering the value chain can achieve significant cost advantages from two mechanisms: first, reengineering is not the same as improvement, the value chain reconstruction will fundamentally change the cost structure; second, the enterprise after a period of twists and turns to reconfirm the significant factors affecting the cost, and thus to change the basis of its competition. Re-engineering value chain methods such as: adopting different processes; utilizing automation differences; changing from indirect to direct sales; adopting new distribution channels; and integrating forward (towards raw materials) or backward (towards products).
To cite two examples, one is Japan's Shiseido has been hoping to through the Ministry of distribution channels will be products (cosmetics) into China, but little progress, and then in Shanghai Pudong to engage in joint ventures, direct production and marketing in China, this reconstruction of the value chain initiatives, a substantial reduction in tariffs, freight and labor costs. Second, the United States Southwest Airlines had a long shuttle in large airports, and many large companies head-to-head, poor profitability, and later opened up another way, between small and medium-sized cities to provide short-haul cheap service: downtime to take off again as long as 15 minutes to increase flight density, equivalent to the extension of the voyage; no first class on board, do not designate the seat, do not serve meals to cut down on fares; passengers can go to the gate vending machines to buy tickets, in order to save commissions; and all-in new Boeing airplanes to cut maintenance costs, thus recreating the value chain and gaining a clear cost advantage.
Fifth, long-term maintenance and consolidation of cost advantage The strategic value of cost advantage depends on its durability: the durability of cost only exists if the source of the enterprise's cost advantage, for competitors, is difficult to copy and imitate. There are two basic ideas for maintaining cost advantage: first, to develop durable sources of cost advantage and expand their quantity; second, to construct barriers (like tariff barriers in international trade) to prevent experience from spreading and competitors from invading. Specific operations such as building alliances to obtain franchises, maintaining differential land rents, seeking government policy support, seeking market monopoly position, etc., can be a durable source of cost advantage.
For example, sichuan changhong in recent years, constantly fight the price war, with low prices for market share, by making the competitors to achieve the market size to develop and expand the persistent source of cost advantage. Another example is Microsoft, which relies on the creation of proprietary and exclusive "Windows" Office software and the use of legal provisions protecting intellectual property rights and other barriers to consolidate its stunning cost advantage. 1998 Microsoft's sales compared to General Motors (the top of the Global 500) were 5% of the latter's, while profits were 44% and stock market value 44%. 44 percent, and a stock market value 2.4 times that of the latter, the cost advantage is evident.
In summary, the key to using the value chain analysis method in enterprise cost management is to carefully analyze and identify the structural factors that affect costs, and then to seek strategic ways to cost advantage for these factors, and to develop lasting sources of cost advantage in order to maintain and consolidate cost advantage.