APPLICATIONS IN COST MODELING
The course focuses on 17 key objectives, including proper budgeting, comparing cost types vs. behaviors vs. decisions, calculating supplier profitability and rolling out to both your internal customers and suppliers with fundamental exercises and case studies.
Prior to the fall of two great U.S. giants, MCI (telecommunications) and Arthur Anderson (accounting and consulting), AA was a supplier to MCI. Based on the AA philosophy of “billing your brains out,” AA was charging MCI over $400 per hour (U.S.) for their young consultants to do nothing more than make copies of files for a period of several months. Why didn’t MCI catch this? In the context of a multi-million dollar consulting arrangement, AA was the lowest bidder when MCI initially went out with its RFP – Request for Proposal to major consulting firms. Additionally, in the context of this major consulting gig and numerous activities to be performed, the copying tasks did not even show up on MCI’s “radar screen!”
But this true example does emphasize the point of our event that Cost Modeling is more crucial and powerful than simply price analysis. In fact, computer software can simply take three or four quotes and pick the lowest one. When purchasers transition from tactical buying to strategic Supply Management, their ability to do Cost Modeling is where they really earn their salary. For it focuses on the cost structure of a product or supplier. In fact, the definition is: “a technique used by purchasers to better understand the logic behind a supplier’s pricing, especially as it pertains materials, direct labor and overhead expenses. It is typically used to support pricing, and lead to a better understanding of the process that culminates in a make or buy decision.”
Understanding supplier and product costs can help the Supply Management professional, such as yourself; develop an appreciation of important cost drivers, which provides a starting point for cooperative relationships to reduce total supply chain costs.
In this presentation, we focus on four key areas, (1) Cost Modeling Elements (including types, behaviors and decisions, (2) Should Cost (an internal assessment before going n into the negotiation) vs. Target Cost (knowing both price and profit up front and backing into the cost), (3) TCO-Total Cost of Ownership models (knowing the Pre-Acquisition, Main-Acquisition and Post-Acquisition costs), and (4) Rolling out best-in-class practices to your supplier(s). Also included in the course is an understanding of budgeting as a pre-cursor to good Cost Modeling and being able to differentiate between cost Avoidance, cost Reduction and cost Containment.
To support all of the above, this course will be featured in SCE’s virtual classroom with all of the functionality featured in our DEMO and based on our teams working with major corporations in BIC-Best-In-Class practices. It will be a blend of educational topics, pertinent case studies, and practical stories based on past practices. You will learn vital skill sets but also have fun!
Upon completion of the Applications In Cost Modeling course, the participant will:
- understand the four-fold purpose of a budget which is to get pre-approved funding, set standards, monitor and most importantly, control
- compare and contrast the various types of budgets including Zero-Based, Line-Item, Capital and Flexible
- differentiate between a cost Avoidance (part of the increase), Reduction (the cost goes down) or Containment (you don’t spend more than the previous period)
- understand how Cost Modeling relates to Value Analysis and Value Engineering
- describe the five principles of Cost Modeling
- review both the costs of quality as well as the costs associated with inventory
- define a Spend Analysis and engage in a five-step model
- define Total Cost of Ownership-TCO and its three categories of Pre-Acquisition (getting ready to make the buy), Main-Acquisition (making the buy) and Post-Acquisition (after the product or service is shipped or received)
- review the factors that make up the Cost Driver Framework
- differentiate between cost Types vs. Behaviors vs. Decisions
- compare and contrast principles of Direct, Fixed, Variable and Mixed costs
- review and apply both Life-Cycle and Activity Based costing
- define Should Cost including a mathematical calculation
- define Target Cost including the three types: Price, Cost, Value
- review and apply three Overhead Allocation formulas
- compare and contrast key supplier Profitability ratios
- understand how to roll out these great techniques to your supplier including the use of Reverse Marketing and the Customer/Supplier Symposium
Depending on the learning style of the participant, this course is designed to be approximately 15 hours in the e-Learning – virtual classroom. Additionally, at the end of the course – you will take an on-line quiz to make sure you have grasped the key points.
Upon completion of the Applications In Cost Modeling course, the participant will receive a certificate of completion with 15 ceus of credit.