MEANINGThe use of cost information made by management

to achieve the aims of a company

STRATEGIC COST MANAGEMENT is the overall

recognition of the cost relationships among the activities in

the value chain, and the process of managing those cost

relationships to a firm's advantage. Also known as Cost

Management Theory.

DEFINITION• Strategic cost management can be defined as"

scrutinizing every process within your

organization, knocking down departmental

barriers, understanding your suppliers'

business, and helping improve their processes"

Main Aim of Strategic Cost Management

To make sure that the business organization is able

to be successful in its endeavors and also grow.

Strategic cost management is also aimed at

sustaining the rate of growth that has been achieved

by a particular company

A very important part of the process of strategic

cost management is the proper usage of the

available resources.

Applications of Strategic Cost Management: There are three basic business areas where

strategic cost management can be applied.

Strategic Cost Management Framework:

The Strategic cost management framework

provides a clear plan of attack for addressing

costs and decisions that affect them. Following

are the three core components of this framework.

Strategic Management Programme Steps: SCM Programme includes following five

steps.

1. Focus: 

Focus state starts with reviewing the different strategies

of the company. Reviewing the strategies will lead to

clear identification of performance gaps and this will help

to bridge the gap by improving targets already set

beforehand. Modifying the targets will lead to developed

plan of attack which will foster better internal

communication within the organization.

.

2. Planning and Training:

Planning plays a crucial role in implementing strategic cost

management programme. To implement the planning, a

manager should gather very efficient team members and

train them accordingly. Setting up of project management

structure will facilitate the implementation of strategic cost

management by clearly identifying the day to day activities,

steering guidance and offering ad hoc assistance

3. Fact Finding:

  This stage includes the tasks such as data gathering,

conducting interview, developing benchmarks, conducting

customer surveys.

4. Analysis and Recommendations for changes:

 Analysis of activities plays a crucial role in ascertaining the

cost of the company.  It can be done by various strategic cost

management analytical tools viz. cost driver analysis, activity-

based costing, selective business process reengineering etc.

An action plan for proposed change should address the

following questions what, who, when how aspects of the

activities.

5. Implementation:

  In implementation stage the first task to be done is to

define responsibilities and accountability of each

individual and controlling i.e. monitoring and

corrective action should be the taken at each stage of

programme. And this is how the continuous

improvement can be achieved. The third, fourth and

fifth sate in the above process indicates continuous

improvement.

Key Enablers That Facilitate Strategic Cost Management.

Analysis and Planning Enablers

Implementation Enablers

Analysis and Planning Enablers Top management support and sponsorship

Information systems

Identity of total cost drivers

Cost models

A strategic cost management plan

Effective cross-functional teams

Known Business strategies

Alignment of supply strategies with business strategies

Total cost approach to procurement

Balanced approach to sourcing

Performance measurements

Redefinition of procurement business processes

Maximize the leverage effect of purchasing

Implementation Enablers: Supply chain visioning

Diffusion of best practices in the organization

Strategic alliances

Planned change management

Supply base rationalization

Existence of shared supplier-customer

strategies

Minimization of transactional activities of

purchasing

Shifting of supply chain costs

Outsourcing

Use and Importance of Strategic Cost Management

The process of strategic cost management is very

crucial in the context of the present day business

enterprises. There are several ways in which the

process of strategic cost management can be used.

They may be mentioned as below:

Employing strategic resources

Making important business decisions

Examining strategic resources

Locating important resources