Better Business Decisions Using Cost Modeling: For Procurement, Operations, and Supply Chain Professionals

Information is power in supply chain operations, negotiations, continuous improvement programs, and process improvement, and indeed in all aspects of managing an operation. Accurate and timely information can result in better decisions that translate into improvement of bottom line results. The development and effective use of cost modeling as a method to understand the cost of products, services, and processes can help drive improvements in the quality and timeliness of decision making. In the supply chain community an understanding of the actual cost structures of products and services, whether with new or non-partner suppliers, can facilitate fact-based discussions which are more likely to result in agreements that are competitively priced and with fair margins. Further, accurate cost models which are cooperatively developed between supply chain partners can form the basis for joint efforts to reduce non-value-added costs and provide additional focus towards operational improvement.While many organizations feel confident they have an understanding of the cost structure for products and services produced internally, cost modeling often uncovers areas where significant cost improvement can be obtained. Cost of quality is a particular type of internal cost model that analyzes the true costs associated with the production of less than perfect products and services. The development of a cost of quality model can provide insight into how products or services of higher quality can be produced at lower cost.This book provides the business student or professional a concise guide to the creation and effective use of both internal and external cost models. Development of internal cost models is discussed with illustrations showing how they can be deployed to assist in new product development, pricing decisions, make-or-buy decisions and the identification of opportunities for internal process improvement projects. The creation and use of external cost models are discussed providing insight into how their use can drive collaborative improvement efforts among supply chain partners, better prepare for price negotiations, and keep negotiations focused on facts rather than emotions - all while allowing for future discussions with preferred suppliers to focus on more strategic and operational improvement initiatives, and less on pricing. A number of detailed cost model examples are provided to educate on both how cost models are constructed, and to demonstrate how they have been effectively deployed.

About the Author :
Victor E. Sower is a distinguished professor emeritus of operations management at Sam Houston State University (SHSU). Before entering the academic arena at SHSU, Vic worked for 18 years in a variety of manufacturing positions, including process engineer and process development engineering manager for Ampex Corp. At SHSU he taught courses in operations management, supply chain management, quality management, and technology and innovation management and established the Sower Business Technology Laboratory in the College of Business. Christopher H. Sower is director of strategic sourcing for ConocoPhillips in Houston, Texas. Prior to his employment at ConocoPhillips, Chris worked 11 years in a variety of supply chain, procurement, and management information systems (MIS) positions, including business systems analyst for Texaco, strategic sourcing analyst for ChevronTexaco, strategic sourcing specialist for ChevronTexaco, category manager for Limited Brands, and director of strategic procurement for Charming Shoppes. Chris has a BS in psychology and an MBA from Sam Houston State University.