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Tuesday, February 12, 2013

Effective Strategic Cost Analysis within the Food Industry



The goal of any organization is to turn investment into revenue. Growing businesses requires the efficient use of investment dollars to offer products or services that are competitively priced on the international market. Strategic cost analysis is an important part of ensuring that such resources are not being wasted on organizational activities that are not in alignment with strategic goals. In addition, effective analysis of cost and waste will help ensure overall efficiency within organizational systems. New research helps highlight how such analysis work to support the strategic benefits within the food industry.

The efficiency of an organization is its ability to take inputs and successfully convert them into outputs with the least amount of waste possible. Cost management is one means of trying to improve the competitive advantages for firms that have sufficient assets (Lapasinskaite & Boguslauskas, 2005). Through this cost management, organizations can reduce waste while still while avoiding negative impacts on organizational goals.

Effective cost controls can further organizational development by ensuring needed resources are being spent in the most appropriate strategic areas. Such measures can encourage better management of resources, competitive cost advantages, firm performance and overall quality (Cooper & Slagmulder, 1998). Such programs seek to reduce overall waste within the system and ensuring higher levels of efficiency

Customers and investors can both receive advantages through appropriate cost investigations and protections. Cost management is a philosophy and attitude designed raise value by lowering production costs (Kumar & Shafabi, 2011). It is through the creation of lower costs that products customers pay less at the checkout counters and investors earn higher returns on invested dollars.
Of course firms cannot simply cut their way to success. There must be appropriate revenue generation by offering beneficial products and services. However, in the 21st Century strategic cost management is a major component to revenue generation of firms (Kumar & Shafabi, 2011). Products must be competitively priced when compared to those products being offered in international markets. 

Strategic cost management should be included in the development of appropriate competitive strategies (Shank and Govindarajan, 1993). It creates financial practicality to both current and future operational approaches. Furthermore, it offers an opportunity to value those approaches for their overall competitive financial worth. Such measures have the opportunity to help increase wealth creation throughout the entire value chain (Shank & Govindarajan, 1992). 

Research conducted by Chaikambang, Ussahawanitchakit and Boonlua (2012)surveyed 168 food businesses in Thailand as to their competitive cost analysis efficiency, resources usage, operational excellence, use of information, and organizational goal achievement. The purpose of the research was to examine the effectiveness of strategic cost management and the antecedents to successful organizational management. The research finds that successful strategic cost analysis has a positive impact on operational excellence, information specialization and organizational goal achievement. 

Not all variables were found to be positively associated with a beneficial result. Out of 28 variables within the study the following 15 were supported from respondents:

  1. -Customer service cost implementation has an impact on information specialization.
  2. -Competitor cost efficiency analysis has an impact on operational excellence, information specialization and decision-making advantage.
  3. -Resource cost assessments have an impact on operational excellence.
  4. -Accounting systems moderate relationships between strategic cost management, operational excellence, and decision-making ability.
  5. -Accounting knowledge has an impact on value added initiatives and operational excellence.
  6. -Accounting knowledge has an impact on the relationships between resources usage and operational excellence.
  7. -Operational excellence has an impact on decision making advantages.
  8. -Valuable information has a significant influence on decision making advantages.
  9. -Operational excellence has an impact on goal achievement.
  10. -Valuable information has a positive impact on goal achievement.
  11. -Environmental learning has a significant impact on the relationships between information and goal achievement.
  12. -Organizational visions for growth have an impact on value-added activities and effective resource usage.
  13. -Accounting competency has an impact on cost allocation effectiveness.
  14. -Competitive market volatility has a positive impact on cost allocation, effectiveness, customer service costs, competitor cost efficiency, and resource usage.
  15. -Knowledge integration has an impact on the relationship between accounting competence and cost allocation.

From the results managers can further determine that having appropriate cost analysis can save waste while increasing revenue generation. However, effective cost management requires significant accounting knowledge, appropriate operational information, and specifically defined organizational goals. Through the use of such approaches managers can make better informed decisions that further the obtainment of strategic goals.

Chaikambang, C., Ussahawanitchakit, P. and Boonlua, S. (2012). Strategic cost management and goal achievement: evidence from food businesses in Thailand. International Journal of Business Strategy, 12 (4).   

Cooper, R. & Slagmulder,.R. (1998). What is strategic cost management?. Management Accounting,
79, 14-16.

Lapasinskaite, R,. & Boguslauskas, V.(2005). The maintenance cost allocation in product life cycle.
Inzinerinev Ekonomika - Engineering economics, Kaunas University of Technology, 4(44), 17-23. 

Kumar, A. & Shafabi.(2011). Strategic cost management – suggested framework for 21st Century,
Journal of Business and Retail Management Research, 5 (2), 118-130.

Shank, J.& Govindarajan, V. (1992). Strategic cost management and the value chain, Journal of Cost
Management, 4: 5–21.

Shank, J.& Govindarajan, V. (1993). Strategic Cost Management., Free Press,New York, NY.

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