Variable costs related to material and labor are relatively easy to link to products or services – but costs that occur after a delay or are related to multiple products or deliveries can cause blind spots. Such costs include for example distribution, reverse logistics, end-of-life excess and marketing.
Allocating these costs evenly to all products and services can be dangerous, as they are not caused evenly. Taking a more proactive approach to understanding total costs can open new opportunities for gaining an advantage over competitors, or even for entering new markets.
Often the most significant cost element is procured material costs. Such costs are typically considered static and negotiated periodically with the suppliers, with few active measures taken to optimize them.
Proactive companies use cost breakdowns to validate the right starting price and aim for steep cost erosion and use supplier portfolio management to ensure adequate competitive pressure between suppliers. Risk-sharing can also be used to form win-win business models aligning life-cycle profitability for both the customer and the supplier.
Many companies are extremely sales-driven, and management moves mountains in the pursuit of sales opportunities and growth. If such companies cannot account for all the costs triggered by these sales efforts, they will not be able to pinpoint where the costs and risks of pursuing the opportunities outweigh the possible gains.
In contrast, companies which manage their full profitability can decide to occasionally forgo short-term revenues and optimize their long-term profitability over short-term top line growth.
The ability to optimize profitability after total costs can even enable the creation of new and profitable business using price points that competitors cannot reach.
This requires identifying all costs and their triggering activities on an extremely detailed level and then running the new innovative business in a fundamentally different way to prevent triggering any unnecessary costs.
Total cost efficiency enables
Efficient procurement secures
Examples of specific areas where we can help you:
We tailor our projects according to the specific needs of our customers.
Should we discuss how you could gain control over your total costs? Book a meeting with Mikko Myllys or send us a message and let’s find out together!
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