As Seattle based company Billings Equipment Inc. pushes on to produce a new product line, the organization is instructing supply management employees to reduce costs and cycle times of suppliers, to adhere to the Target Cost objectives. The hasty production timeline restraints led to early missed cost reduction opportunities, unethical reneging on supplier price contracts in order to reduce costs, and jeopardizing Billings Equipment’s historically impeccable reputation for ethical treatment of suppliers. This product line’s aggressive timeline to market; leading to early missed opportunities to reduce costs, followed by forceful demand to suppliers for a ten percent price reduction, and followed by an additional five percent price reduction …show more content…
(Target costing is “a structured approach for determining the cost at which a proposed product with specified functionality and quality must be produced to generate a desired level of profitability at its anticipated selling price.”) In order to properly achieve target costing a company must complete the following steps; determine a market price point for the proposed product, calculate the target cost by subtracting the desired profit from the target price, reiterate the product design to achieve target cost, and finally revise the market price following the redesigned product and current market conditions. This mistake in the implementation of target costing led to missed opportunities to reduce costs through the redesign of product components and tooling. The missed cost reduction opportunities resulted from the hasty decision making in the design phase, Billings accepted early component designs without additional cost reducing …show more content…
The proposed solution in this scenario when the general manager is unwilling to drop the product line, due to extensive sunk costs, or reiterate the design phase would be to renegotiate contracts and allow the company’s ethical reputation to suffer the consequences. Before beginning the renegotiation process with suppliers reevaluate the profit margin used to determine the target costs, reducing company profit prior to renegotiations (it may be possible to make up the needed five to ten percent cost savings and eliminate the need for additional renegotiations.) When renegotiating sit down with suppliers, capitalize on the relationships made with these suppliers with a face-to-face discussion, explain the situation in hopes of working toward a solution that will allow this product to flourish in the current market place providing both parties with a mutually beneficial growth in production and profit. Understand the consequences of reneging on the previously agreed upon contracts; renegotiating price multiple times will undermine your relationship with suppliers and may promote suppliers to cut quality to cut costs to meet price demands, and may also cause suppliers to loss faith in the way you do business, potentially inflating pricing contracts in the future in anticipation of price reduction
In conclusion, throughout this paper we have read that Targets main goal is to provide their customers with quality products and services that will not only meet their needs but exceed those needs as well. Through the research we have not only learned that that this goal has been met but that Target despite meeting this goal has continued to do what they can to continued meeting this goal, over and over again, exceeding it each and every time not only to meet their expectations but to continuously meet the needs of the customers. Always keeping them satisfied as well as keeping them returning each and every time they have a need because they know that Target will have what they need when it’s needed.
Roybal, H., Baxendale, S.J., and Gupta, M., (1999), “Using Activity-Based Costing and Theory of Constraints to Guide
John Deere Component Works (JDCW), subdivision of John Deere and Co. was in charged specifically of the manufacturing of tractor component parts. The demand for JDCW’s products had problems due to the collapse of farmland value and commodity prices. Numerous and constant failures in JDCW’s competition for bids, alerted top management to start questioning their current costing methods. As an outcome, the analysis has to be guided to research on the current costing methods with the intention of establishing legitimacy and to help the company in adopting a more appropriate costing system.
In 2010, for instance, Wal-Mart racked up over $400 billion in sales. Instead of offering just selected items at a low price to bring in customers, Wal-Mart uses its massive buying power to force supplier companies to become more efficient and sell products at a low price all the time. (Huebsch, n.d.). Thus, Walmart strategy is firstly oriented towards low prices. In order to reach it, it has to work more efficiently than its competitors, lower the costs inside the company and also the prices of the supplier provided products. In a company, which has chosen low price strategy, one should not expect high salary or the best customer service (Stankevičiūtė, Grunda, & Bartkus, 2012).
Alan needed to figure out how to increase profitability, the goal he was hired to achieve, by restructuring and educating his employees in any way he saw fit. To exemplify the grandeur of his position, Alan Thompson reported regularly to the President of Texaco Canada. Having a background with Redpath Sugar, a major sugar manufacturer, Alan’s vision became clear soon after starting at Texaco Canada: Deliver the right product, for the right price, all the while understanding exactly what it was the customer desired out of their business transaction. Alan’s examination of the business concluded that Texaco had multiple product lines, some redundant, and the missing link was that customer’s needs were not being matched to the right product in Texaco’s line up. He exclaimed in our interview that in his industry, the 80/20 rule was prevalent. In other words, Alan found 80% of customers concerns when dealing with Texaco were driven by price of product, while only 20% of customers concerns were driven by purchasing the right product that would allow a lower compound cost when down time and cost of service were included. Alan’s strategy had to be, from an operational standpoint, to figure out ways to convince the 80% of customers that they needed to transfer their vision of cost to a more long term model. That is, in order to lower costs over the long term of operating a business, that a higher quality product being used in their vehicles, over time, would increase productivity of their vehicles, decrease the downtime associated with servicing vehicles, and increase profitiablity. By taking this customer first approach, Alan found that Texaco Canada could increase its’ sales of a broader scope of available products, and not just increase sales of their cheapest, lowest quality oils and
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My second SMART goal for the internship is to be able to confidently negotiate with a John Deere supplier by learning to recognize the details of each part in production and compare the different supplier possibilities using supplier cost databases by June 30, 2018. The internship will help me achieve this goal by having my supervisor demonstrate several make versus buy decisions with the purpose of me gaining the knowledge of how John Deere selects its suppliers. After gaining the initial knowledge of important supplier criteria my internship lets me participate in resourcing activities. These resourcing activities include looking at the history of suppliers and collecting cost data to eliminate unqualified suppliers. Similarly, Supply Chain Management has taught me knowledge of make versus buy decisions.
In the system, design analysis and other additional analysis are used to reduce product cost by analyzing the trade-offs between product functionality and total product cost. Review and revision are carried out throughout the process. Moreover, the continuous improvement and operational control are also used to further reduce costs. However, the functionality reduction during the process will adversely affect the differentiation strategy as what we mentioned
An organization costing system is a system that helps the management with the strategy planning while the system plays an important role in providing accurate cost information about the products and customers (Curtin, 2006). UPS utilizes the Activity-Based Costing (ABC) system. ABC assumes that activities cause costs and that cost objects create the demand for activities (Marx, 2009). The key to cost allocation under ABC is to identify the activities that are performed to provide a particular service and then aggregate the costs of the activities (Gapenski, 2012). This is a marked departure from the practice of sharing overheads costs equally or overheads becoming part of the overall profit-loss estimate instead of component product pricing (Nayab, 2011).
...e highest in the industry (Figure 3). The design team plus representatives of each of the other redesign teams were brought together to develop a systemic analysis of the bigger picture of the company. Figure 4 illustrates the systems map which revealed that the root cause of the company’s high supply chain costs was ongoing effort by the sales and marketing organizations to increase product mix to improve profitability. The increasing of the product mix led to many unplanned consequences that both increased supply chain costs and eventually reduced revenues as well. From this new acquired knowledge the management streamlined its product line and achieved both higher revenues and lower costs. (Stroth, 2012)
In order to meet these goals in a competitive business arena, the management team, in agreement with the Board of Directors, has selected a cost leadership strategy with a product lifecycle focus. An article on The Business Models and Strategies blog (Michail, n.d.) highlights Porter’s view of the strengths of this business strategy against the five competitive forces.
Another lesson of the game materialized gradually at first, but steadily became more and more evident with each round of play. This lesson was the demonstration of the overwhelming ineffectiveness and utter futility of approaching logistics from the position of total ignorance. With no forecast or sales history to serve as a guide or predictive tool, the participating supply elements simply had nothing to base their projected order quantities upon other than pure conjecture. Operating in a vacuum relative to the other players of the supply chain was nothing less than counterproductive. Closely related was the development of a subdued, but underlying, sense of hostility within the supply chain as orders were placed that didn’t correspond with anticipated amounts. When this type of communication breakdown exists in the real world, an irritation between supply elements invariably manifests itself. Additionally, the resulting waste of time, material, storing of inventory and other resources expenses further fuel the fires of frustration and discord between supply elements.
Dell’Isola, Alphonse and Stephen Kirk. Life Cycle Costings for Design Professionals. New York, McGraw-Hill. 1981, Print.
The second way is to achieve low direct and indirect operating costs is gained by offering high volumes of standard products and offering basic no-frills products. Production costs are kept low by using less parts and using standard components. Limiting the number of models produced to ensure larger producti...
Activity-based costing (ABC) is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore “fixed” as well as variable costs. Activity-based costing is mostly used for internal decision making and managing activities while traditional costing method is used to provide data for external financial reports. Most organization uses activity-based costing as an addition system for using traditional absorption costing as sometimes the traditional cost system misleads the product’s profitability. In a company, there are many products on sale, if one product is sold at a high price with low product margin and a product with high product margin at a low price, it may result in a loss. In addition, due to the reason that cost drivers and enterprises business may change, activity-based costing analysis also needs to be revised periodically. This amendment should be prompted to change pricing, product, customer focus and market share strategy to improve corporate profitability.