Minimizing Cost in a Value Function Chain, Essay Example

Abstract

In the value function chain, many ‘links’ affect the total cost of production or the rendering of services- whether the phase includes variable or fixed costs. Research and development, design, production, marketing, distribution, and customer service drive cost and include many aspects which directly impact other phases of production as well as the total quality and cost of goods or services. In this paper, preventive strategies address the decrease of variable costs in the value function chain.

Minimizing Cost in a Value Function Chain

In the value function chain, many ‘links’ affect the total cost of production or the rendering of services. Research and development, design, production, marketing, distribution, and customer service drive cost and include many aspects which directly impact other phases of production as well as the total quality and cost of goods or services. In this paper, preventive strategies address the decrease of variable costs in the value function chain.

Variable and Fixed-Cost Strategies

During research and development, a primary goal should be the careful selection of customers provided with surveys. However, if the expense of the customer research- calculated by hour x hourly wage for hourly staff and by salary divided into daily increments for salaried staff- exceeds the projected gains, then the purpose of research should shift. In newer companies with a primary goal of building name brand recognition, building contacts, advertising, etc., a greater cost in this phase constitutes an investment in greater future value. In other words, more clients equals more business, but it takes money to make money. Underestimating the obstacles of this phase proves costly later in the value function chain.

Chapter Two of our text focuses mainly on design as a physical creation of product. However, with the increasing uses of technology or the hours of production which may only require a creative team, some coffee, many questions, and many more hours, the importance of fully utilizing salaried staff increases. As an unpredictable phase, design includes changes to improve quality. To shorten this phase compromises the final value of the goods or services offered. Getting an initial ‘worst case’ time estimate from a knowledgeable expert or team leader provides a reasonable expectation of cost. The preparation of alternative courses of action aids in this phase. In some cases, legal guidelines restrict the possibilities, so these parameters are a crucial component of value research.

Unless unexpected barriers arise, a production model calculates the fixed costs of materials, wages, and hours. Smaller costs, such as the replacement of machinery, the updating of software, security, etc. will vary, but if the crucial components for businesses persevere, then these costs should be minimal.

Marketing, as unrelated to research, includes more direct persuasive advertising. The research phase gleans information; the marketing phase gathers potential customers. The issues of minimizing cost do not differ much, although companies frequently spend millions on this phase, in order to obtain the advertising and marketing services of firms with higher success rates, another aspect to consider during the research phase.

Distribution, like production, largely follows a fixed-cost formula of value. The thorough inspection of transportation vehicles means fewer late deliveries and less depreciation, but this phase mostly takes a simple calculation of weight, the cost of using the vehicle, and the payment of the drivers, and the stockers. Again, this assumes a physical good or service exists. Companies with intellectual services may distribute their goods with a click of the mouse but may require a secretary or software to ease the sorting of information online, for example.

Finally, customer service in America demands direct attention both in the selection of representatives and in the consideration of a problem, company policies, and when exceptions to general practices might secure a customer or prevent them from disregarding goods or services. Customer service costs only seem to increase with time, as lawsuits over too-hot coffee gain momentum. Phone availability and, increasingly, website layout and support factor into public perception.

Conclusion

As discussed, each ‘link’ of the value function chain requires its own challenges and skills sets- whether the phase includes variable or fixed costs. A successful cost management plan embraces the old advice: “Hope for the best, prepare for the worst”. If thorough estimates of higher costs prove alarmist, then the cost savings roll into greater profit, presenting no considerable disadvantage to being cautious.

References

Horngren, C.T., Sundem, G.L., Schatzberg, J.O., & Burgstahler, D. (2011). Introduction to Management Accounting. 16^th ed. Chapter 2. Pearson Education, Inc. Print.