Understanding of the relationship between the costs of the firm and the value the firm provides to its customers is the key to the ability of the firm to reach its profit potential. From this perspective the firm needs to have a thorough understanding of its activities, their costs and their relation to market prices. Advanced cost management studies and practices suggest a variety of different tools that help us understand the relationship between value and cost. However, most of these studies provide us with qualitative tools only. An exception is studies related to product cost planning, as in the case of target costing or value analysis/value engineering. This paper, while being a part of emerging literature on strategic cost management, extends the existing knowledge of the relationship between costs and value by introducing the value creation model (VCM). In particular, the VCM model defines the firms' cost structure in terms of value added, non-value added but required activities, as well as of waste. A firm's cost structure is aligned with value attributes embedded in products and services. The VCM model seeks to understand the trade-off between what the customer is willing to pay for a product/service bundle (value) and the cost the firm bears to provide what the customer desires. Based on these trade-offs, VCM defines value multipliers, which help the firm determine which activities the firm should focus on in order to develop a competitive advantage.
Purpose -This paper fills the gap between defining and measuring the productive limits of a machine or system, and the impact of various assumptions about the productive potential of the nature and informativeness of capacity cost management systems. The authors focused on the various ways in which multi-dimensional limits (for example, time, space, volume and/or value-creating ability) can be used to define productive capacity. Specifically, our research suggests that the limits used in establishing the capacity cost management system restrict the amount and nature of the information the system is capable of providing to management.Justification -Two reasons are identified for studying the impact of capacity measurements on organizations. First, firms which make the best use of their resources can be expected to outperform their competitors. The second arises from the potential structuration effect of capacity metrics. Such an investigation makes capacity a visible, and hence an actionable, construct.Design/Methodology -To explore these issues, a combination of analytics and qualitative field research methodology was used. The measurement dimensions were developed by analyzing the different reports, baseline measures, and metrics included in the various capacity models as suggested by the literature. These analytics were enriched with observations obtained from field research.Findings -Maximizing the value created within an organization starts with understanding the nature and capability of all the company's resources. The outcome is the identification of capacity systems specifically suited for particular types of operations, both manufacturing and service.Practical implications -Such frameworks would allow organisations in developing economies, to make visible, the drivers of waste and productivity and to identify the primary assumptions and implications of various capacity limits. KeywordsCapacity management, Cost management models, Capacity limits. Structural Limits of Capacity and Implications for Visibility AbstractPurpose -This paper fills the gap between defining and measuring the productive limits of a machine or system, and the impact of various assumptions about the productive potential of the nature and informativeness of capacity cost management systems. The authors focused on the various ways in which multidimensional limits (for example, time, space, volume and/or value-creating ability) can be used to define productive capacity. Specifically, our research suggests that the limits used in establishing the capacity cost management system restrict the amount and nature of the information the system is capable of providing to management.Justification -Two reasons are identified for studying the impact of capacity measurements on organizations. First, firms which make the best use of their resources can be expected to outperform their competitors. The second arises from the potential structuration effect of capacity metrics. Such an investigation makes capacity a visible, and hence an actio...
Managementfe a t u r e a r t i c l e 9
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