Jimmy Anklesaria proposed eight step model to use activity based cost management in his book Supply Chain Cost Management.
The eight steps can be stated as:
1. Deciding to do supply chain cost industrial engineering - Deciding to manage costs of supply chain
2. Identifying critical costs, secondary costs and tertiary costs
3. Measuring costs using activity based costing.
4. Defining costs drivers and options to manage cost drivers.
5. Eliminating and reducing activities of a product. Reducing cost of activities.
6. Implementing the recommendations of activity based cost industrial engineering team.
7. Verifying the plans and results with cost measurement systems
8. Repeating the cycle for continuous improvement using total industrial engineering approach
Details of the steps will be covered in future.
It is important to state that interorganizational cost management was covered by Robin Cooper in his book on Cost Management in 1995.
Supply chain has a distribution chain, production chain and procurement chain. Hence supply chain industrial engineering has distribution chain industrial engineering, production industrial engineering and procurement chain industrial engineering as sub components. Supply chain leader needs to develop industrial engineering expertise in his operations and then provide leadership to other partners in the supply chain.
More from the book
Although most people want to attribute Toyota, Honda, and Nissan’s (JB3) success to ‘‘lean manufacturing techniques’’ in their own manufacturing assembly operations, that is really only somewhat true because 75 to 80 percent of the cost of a car is purchased cost, compared to 20 percent in-house cost. The JB3s often say, ‘‘How goes Purchasing is how goes the company.’’ With 75 to 80 percent of the vehicle cost controlled by Purchasing, it’s easy to understand why using the cost management techniques in this book gives a company such a large advantage over their competition.
Purchased costs almost always represent a greater opportunity area than management first thinks. In fact, only after doing a good spend analysis with a strong follow-up of cost management implementation can you know for sure how competitive your company really is.
You may have some real surprises! For example, some automotive analysts believe that on average Toyota, Honda, and Nissan purchase their parts for an equivalent car at $1,600 less than their American counterparts. My experience heading up Purchasing for Honda of America Manufacturing for ten years confirms that this $1,600-per-car advantage is true. And then working for many years in Senior Management for two major auto suppliers, where I could see the full picture from a supplier’s side, double confirms this fact. Your company can attain the same kind of competitive purchased cost advantage as well.
Following the concepts of cost management, Jimmy Anklesaria describes what will help any company gain and sustain a significant cost advantage similar to that of Toyota, Honda, and Nissan. Companies such as John Deere and others have already put such practices in place. These concepts—they are not just theory—are being used every day by enlightened companies to help them compete.
Zero Base Pric-ing: Achieving World Class Competitiveness through Reduced Allin-Cost, published by Probus Publishing in 1990.
Dr. Burt had just released a book called Proactive Procurement
https://www.oreilly.com/library/view/supply-chain-cost/9780814474754/9780814474754_ch02lev1sec4.html
https://www.thescxchange.com/articles/183-identifying-critical-costs-in-the-supply-chain
https://vdoc.pub/documents/the-supply-chain-cost-management-the-aim-drive-process-for-achieving-extraordinary-results-10abp5odbp70 (interesting to read*)
ud. 29.11.2025
Pub. 12.5.2015
We are working hard to give Sustainable Supply Chain Solutions. This article is a big help to us and top other firms in this field.
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