Why Strategic Cost Management?

CEOs, Presidents, Owners, etc. always need to be examining, tweaking, and/or reinventing their business models towards maximum profitability. In order to do this, they need information about the cost structure and profitability of their products, processes, customers and channels.

It is crucial to know which parts (customers, channels, products, etc.) of the business are more profitable than others. Some parts may actually be removing profit from the bottom line. If all parts are considered to be adding to the bottom line, which parts add less profit than others? Because resources for these parts are underutilized and could be applied to more profitable parts.

Unless the company has a highly sophisticated ERP system with dedicated IT and analytical resources, this information is not readily available. Some companies have to rely on what they can get out of their standard cost systems, but these systems are typically designed for financial reporting, not strategic management decisions.

So, do you have the necessary detail, to confidently make these decisions?

• If you are sophisticated enough to have the information to make these decisions:
  - Is the information based on standard cost?
  Would you mind sharing your tweaks on the standard cost system to avoid averaging and cost distortion, and how you achieved the necessary level of detail?
  - If it is not based on standard cost, what types of analyses did you perform to arrive at the information?


• Your sophistication level is top of the line:
  - What actions has your team taken in the last 90 days based on the information you gather around customers, channels, products, and processes?
  - What other types of decisions do your team members make based on the data and information you have?
  - Are you able to attribute an increase in profitability to these actions and decisions? How would you quantify this?
  - If you decided not to make a certain change, what were your reasons for that decision?
  (for instance, why did company x NOT discontinue product line 5?)
  - How do you manage/incentivise/direct your sales force to go after the most profitable business?
  - How do you monitor changes in product mix and/or profitability? And how do you change your organization's behavior in light of any shifts?