COVID-19: Rethink Cost Rationalization for Supply Chain
Effective supply chain management requires target costing to understand value stream and value engineering better. Not with standing its name, target costing centres on customer requirements. Cost is viewed as an end result, and as an economic umbrella; customer requirements are viewed as binding competitive constraints. All supply chains contain three core elements; Suppliers; Producers; and Customers. Whatever the composition, the parts of a supply chain must operate in a coordinated manner. The goal of the coordinated efforts among the elements of the supply chain is to achieve operational excellence that results in superior customer value and satisfaction.
The most glaring weaknesses of traditional cost management information for managing supply chains is the treatment of customers: except for cost, customers’ perceptions of value and customer requirements are ignored. Suppliers, manufacturing methods, and distribution channels should all be selected based on their impact on unit cost.
Compared to the traditional cost approach, target costing offers substantially better information for the supply chain management. It's cost information is more accurate, it is capable of supporting and monitoring the supply chain strategy, and it partially integrates customer requirements into the analytical procedures used to establish the value of an activity.
Target costing is a process for ensuring that a product launched with specified functionality, quality, and sales price can be produced at a life-cycle cost that generates the desired level of profitability. Though partially masked by variation in its implementations, the targeting costing process has a general structure.
In the outbreak of COVD-19, companies must adopt the target costing system. This costing system is suitable where customer requirements are dynamic. Particularly, value-based target costing process is recommended for the supply chain, regardless of the level of agility in the chain.
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