All deployed cost-accounting processes should clearly maintain the integrity of the master data, bring focus to opportunities for improvement and engender decision makers' trust in results. Operational cost-management approaches will also be needed to add insight into where and how cost improvements can be implemented.

For example, a robust ABC process could make the costs of input material trustworthy and draw attention to deviations. Without a supporting cost-management approach for input materials, however (such as ABC inventory management) it may be difficult to understand how to drive costs down. This is where operational cost management comes in.

Producers broadly add value and incur costs across a value chain consisting of inbound logistics, production and outbound logistics. Each stage can be further broken down to include a host of activities and processes, some of which will be executed by the business and others by partners.

Increasing cost competitiveness
While producers can increase cost competitiveness by improving their own internal processes, ultimately the ability to do business effectively depends on the efficient functioning of the entire supply chain. This encompasses all processes and information flows necessary for the transformation of goods from raw material to the point when the end product is finally consumed or discarded.

The management accountant should therefore consider how the business should interact with all supply chain participants to drive and hold down costs on a sustainable basis. For example, retailers commonly provide suppliers with access to their logistics and store systems so they can take accountability for product availability. Supplier, producer and retailer systems are increasingly being integrated to streamline transaction processing between organisations.

Producers are becoming increasingly specialised and focused on the parts of the value chain where they are best suited to add value. As a result, they are outsourcing a growing proportion of the value chain to suppliers and partners. Recently, producers have started extending supply chain management ever further into their customer base; for example, some businesses facilitate “mass customisation”, where each customer is able to specify products to suit their individual needs.

Managing supply chain costs
Whilst it's important to manage the cost-competitiveness of processes within the producer business, it's also becoming increasingly important to manage costs across the supply chain. This tends to be easier where input materials can be sourced from a choice of suppliers. But where competition in the market for a producer's input materials is weak, suppliers hold the balance of power. To manage input costs a producer has a number of options - these include:
- Engendering competition between suppliers
- Starting production of certain input materials themselves (going into competition with suppliers)
- Acquiring suppliers
- Developing strategic partnerships with suppliers to share the risks and the benefits the market offers

These are strategic options. Management accountants should support the strategic planning process by modelling the value added and costs incurred by all activities and processes across the supply chain that contribute to the master-data values across the business model. This provides insight into both tactical and strategic decision-making.

Streamlining procurement
Efficient procurement processes contribute to margins and reduce working capital. Buyers should work with design and engineering teams to increase standardisation and simplification. Reducing the number of lines helps consolidate the supplier base, increase on-contract buying and leverage economies of scale.

Procurement will then be in a stronger position to negotiate favourable pricing and terms, contributing to margin performance and helping to reduce working capital. The more important the business is to the supplier, the more the supplier will be prepared to do to retain its custom.

Procurement may be able to increase the proportion of inventory on consignment or increase the number and value of lines on Just in Time (JIT) arrangements. Suppliers may also be prepared to invest in data exchange and systems and process interfacing or integration, enabling them to assume more responsibility for the efficient and effective supply of input capitals.


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