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More than ever is it crucial to make all members of any organization aware of the cost and profitability impact of decisions and actions, either taken internally or driven by customer/supplier behavior. For example, sales managers are not always aware of the cost of the complexity they introduce along the supply chain and in the back office:
- customer specific SKU often cause excessive material usage, waste or second choice production
- some customers have extreme requirements regarding sampling, product development, R&D and service-after-sales
- some small order sizes carry 40% of set-up costs
- very high acquisition costs (prospection, RFQs, marketing budgets...) of customers cannot be compensated due to poor loyalty
Additionally we need to monitor simultaneously - within the same costing and profitability model - "profitable growth" and "operational excellence". This requires a clear split of the financial result into "sales performance" and "plant performance". This will allow us to set clear strategic targets."In order to optimize the entire supply chain and also due to acquisitions, industrial manufacturers are operating according multi-facility models. In this environment manufacturers are often challenged by conflicting objectives:
- short term versus long term
- commercial versus operational
- local objectives versus corporate objectives
- profitability versus loyalty
Besides the consequences of being globally active, we also see:
- fast technology changes which shortens the lifetime of machinery and equipment, raising the cost of products.
- customers demanding a higher frequency of releases, shortening the product life-cycle which increases the cost of R&D, product development, …
- increasing efforts needed to acquire and retain customers
This explains the urge for one consistent and consolidated costing and profitability model which can be used for decision making across multiple dimensions such as: BU, customer, product, plant, account manager. These models should result in detailed financial and operational information, e.g. cost of overcapacity.
The members of the Strategy Management Collaborative are the founders of these worldwide acknowledged models and control them like no other, with numerous best-in-class implementations.