Using the value chain to analyse costs

Abstract

In recent years, the optimization of activities throughout the value chain has become a major source of cost reductions has become crucial. Value chain disaggregation of firm’s activities is the precondition of identification of cost drivers. The main elements of process are:
1 - Disaggregation of firm into activities;
2 - Relative importance of activities to total cost;
3 - Compare costs by activity (benchmark);
4 - Identify cost drivers;
5 - Identify linkages;
6 - Identify opportunities for reducing costs.
Increased competition and pressure to create shareholder value particularly in trade business have resulted in unprecedented pressure for cost reduction.