I originally wrote this for my other company’s blog, the Center for Strategic Cost Management, but decided it was fitting topic for the Society of Cost Engineers as well.
Coronavirus and Cost Management
What does the current situation with the virus have to do with Cost Management? The virus is a medical / social issue and cost management is a business proposition. What could they have in common?
If you have been following the world situation, you know that many countries have been relying on “low cost countries” to supply critical equipment, supplies and pharmaceutical. This has all been based on LOW COST country beliefs. Now, many countries are looking to localize these essential supplies to limit their dependency upon others. This is where Cost Management comes in.
As countries work towards localization, they will need to know the SHOULD COST of these critical supplies. Why do they need to know this? If local communities lose the threat of international competition, there will be a great opportunity for higher prices under the guise of higher costs. The Cost Engineering profession not only has the ability, but the obligation to assist in keeping these critical supplies competitively priced. After all, this impacts each of us. Eventually, either us or someone we know will need these supplies.
What we as a profession need to be prepared for is, what is the difference between the low-cost country and our location? Is there that much of a difference? If so where does it come from?
Is it really labor? If so, how much labor is in the process? Is it really driving the cost? Is there a way to minimize the labor content, i.e. automation? What is the operator to machine balance and is it correct? Some of these critical supplies appear to have minimal labor content. Is it material driven? Is the low-cost country really getting the material landed at a lower cost? If so, why? What can be done to minimize this, i.e. consigned material? Is it overhead? If so, how is overhead driving costs.
If you are a hospital, government official or in the supply chain for critical supplies, the Center for Strategic Cost Management can assist you in getting the proper price for these supplies. We can model these supplies, we can assist in negotiations and we can help manage the value stream.
In closing, just imagine if the cost of these supplies prior to the virus were just 10% less. The enterprise could have purchased 10% more for the same total cost.
If this intrigues you, please contact me at:
Owner and Founder
Center for Strategic Cost Management
Society of Cost Engineers