SC0009 - Supply Chain Cost Management

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Summer 2013

MBA (Supply Chain Management) Semester 4

SC0009 - Supply Chain Cost Management - 4 Credits

(Book Id B1664)

Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.

Q1. Explain Activity Based Costing with examples.

(Concepts underlying ABC - 2 marks; Activity based costs – 2 marks; purposes -1 mark ; ABC as a key component of TCM- 2 marks; 2 stage dynamic process and examples- 3 marks) 10 marks

Answer : Concept underlying ABC :

Activity based costing (ABC) assigns manufacturing overhead costs to products in a more logical manner than the traditional approach of simply allocating costs on the basis of machine hours. Activity based costing first assigns costs to the activities that are the real cause of the overhead. It then assigns the cost of those activities only to the products that are actually demanding the activities.

Q2. Before implementing the cost management strategy, an organisation needs to perform the certain tasks. Discuss the tasks.

(Reviewing business plan and procurement/marketing strategy; Identifying initial participants for the cost management team; Selecting primary costs to be managed; Building the rest of the cost management team – 10 marks . i.e – 2.5 marks each) 10 marks

Answer : Tasks before implementing the cost management strategy:

Framework of strategic cost management programs generally include some tasks to be analyzed. The first component includes its core functions, in which management must define the nature of the business and its courses of actions for planning, product development, and research and development. Other tasks to be considered are discussed below :

Q3. Briefly discuss Modern Cost Accounting System.

(Activity Based Costing (ABC) explanation and steps – 6 marks; Process Based Costing (PBC) -explanation, steps and features – 4 marks) 10 marks

Answer : Modern Cost Accounting System:

There are two types of modern cost accounting systems :

1. Activity Based Costing:

An accounting method that identifies the activities that a firm performs, and then assigns indirect costs to products. An activity based costing (ABC) system recognizes the relationship between costs, activities and products, and through this relationship assigns indirect costs to products less arbitrarily than traditional methods.

Q4. Explain the commonly used criteria for risk-benefit analysis (Criteria explanation – 10 marks) 10 marks

Answer : Criteria for risk-benefit analysis:

Risk–benefit analysis is the comparison of the risk of a situation to its related benefits. Exposure to personal risk is recognized as a normal aspect of everyday life. We accept a certain level of risk in our lives as necessary to achieve certain benefits. In most of these risks we feel as though we have some sort of control over the situation. For example, driving an automobile is a risk most people take daily.

Q5. Explain the factors that need to be considered for successfully applying the lessons of mass retailing to healthcare costs.

(Understand the complexity of healthcare – 2.5 marks; Promote cost transparency- 2.5 marks; ’Bundle’ services only when it improves efficiency and price – 2.5 marks; Address regulatory barriers- 2.5 marks) 10 marks

Answer : Factors to be considered :

Mass retailers maintain a continuous focus on reducing costs. They reduce steps in the supply chain, eliminate middlemen, purchase in bulk with volume-based cost discounts, and embrace price competition wherever possible. To successfully apply the lessons of mass retailing to controlling health care costs, efforts should include the following.

Q6. Explain the Classification of Buyer/Supplier Relationship.

(Classification of Buyer/Supplier Relationship :table with classification, dimension description- 5 marks; Criteria: The level of interaction ,The level of co-operation with reference to relationships- 5 marks)

Answer : Classification of Buyer/Supplier Relationship:

Buyer-supplier relationships refer to commercial transactions between organizations for the purchase and supply of goods or services. Although inter organizational transactions have always been important in purchasing and marketing practice, it is only comparatively recently that interest in buyer-supplier relationships has spread across a range of management disciplines.