Boost Strategic Cost Management,Assist in Ship Enterprise Management Improvement

CSSC 2018 Research Group

China’s economic development has entered the new era characterized by high quality development, which places deepening supply side structural reform in the first place of the important deployment of carrying out new development concept and building a modernized economic system, takes promoting “three de-, one reduction and one supplement” as major move, of which “one reduction” means reducing cost, stressing on comprehensive means to lower cost to enhance corporate competitiveness and expand quality incremental supply. These provide food policy environment and strategic opportunity for shipbuilding companies to accelerate and optimize industrial layout and regional layout and develop high-end manufacture, and put forward even higher requirements for shipbuilding companies to implement lean management, drive cost strategy, reshape cost advantages and improve core competitiveness.

Overall Objectives

Shipbuilding companies intending to implement lean management must closely combine overall development strategy, focus on top level design, take building and maintaining mid-term and long-term competitive advantages as overall guidelines, take management improvement as overall direction, carry forward and build the following frame models dubbed “one two three four five strategic cost project”, that is,improving shipyard’s comprehensive competitiveness, boosting corporate high quality development as one general objective, optimizing two deployments of industry and region, establishing three sets of systems of system,organization and standard, improving four operation mechanisms of overall coordination, budget management and control, information integration and risk early warning, and practically execute five driving factors of investment,manufacture, procurement, manpower and period expense.

Specific Framework

1. Adhere to one general objective.

With promoting enterprises to realize the general requirement of midterm and long-term development as fundamental aim, general objective is to improve shipyard’s comprehensive competitiveness and boost corporate high quality development.

2. Optimize two major deployments.

1）Optimize industrial deployment.Firstly, in the light of international and domestic political and economic environmental changes, conduct comprehensive analysis and form effective countermeasures. Secondly, in line with changes in competitive environment,comprehensively analyze industrial comprehensive situations, incline limited resources to industries with cost competitive advantages to maximize corporate resource benefits. Thirdly,go on with driving product upgrading.Focus on core advantage products and continuously make refined and good products; give priority to development of high value-added products, gradually withdraw from low-end fields and incline limited resources to realms with cost competitive advantages.

2）Optimize regional deployment.In combination with economic development environment, conform to rules of regional economic development and gradient transfer rules of globalization, comprehensively analyze advantages and disadvantages of regional distribution of capacity in factor costs,on the principle of benefit maximization,plan for regional layout of different industries in advance, and gradually adjust capacity to regions and countries with cost advantages.

3. Establish three sets of systems.

System is the foundation,organization is guarantee and standard is the norm, the three aspects make synergistic power to steadily support and jointly boost continuous strengthening and perfecting of the strategy cost management system.

1）Institutional system. Firstly,establish a perfect basic system of cost control to normalize corporate cost management standard and requirements in the whole process of production and operation. Secondly, perfect cost control operation system, and develop cost control operability guidelines. Thirdly,consummate cost management system of incentives and disincentives, and develop a reward and punishment system closely related to cost management effect.

2）Organizational system. First, set up strategic cost management organization as an arm of the corporate strategy committee, with corporate executive as head, and founder a special department or authorize to relevant department. Second,establish strategic cost management experts consultation committee composed of internal and external experts, actively use external brain function, jump out of cost and look at the cost, and jump out of cost and engage in cost. Third, explore the management format of establishing project cost director, conduct cost control from the whole industrial chain of the project and endow relevant authority.

3）Standard system. Firstly, cost attribute standardization. Study and develop classification cost standard for typical products, set up standard cost code, unify measurements, and gradually accumulate cost standard database of typical products. Secondly, cost management informatization. Establish cost management information system,strengthen dynamic monitoring of cost for the whole process from operation and undertaking to completion delivery of all products, set up an efficient cost and expenditure control working mechanism.Thirdly, boost norm cost management.Establish and improve norm management system for priority cost and expenditure items, develop consumption rate,take effective measures to guarantee implementation of norm.

4. Consummate Four Operation Mechanisms

The four operation mechanisms are closely related to strategic cost management characteristics, with synergistic effect and organic unification.Overall coordination mechanism to symbolize comprehensiveness and dialectical uniformity of all cost factors is an important practical consideration of addressing current outstanding difficulties, boosting enterprises to realize rational and efficient utilization of existing resources. Budget control mechanism is an essential grab for supporting strategic cost management, so that enterprises can realize full application of inventory resources and accurate orientation of incremental resources and specify direction of dynamic correction of development direction. Information integration mechanism is aimed at extensive application of electronic IT to all links of cost management, realize automation and intelligentization,empower enterprises with clairvoyance and clairaudience, know both ourselves and our adversaries for efficient operation.Risk early warning mechanism enables enterprises to have capability of complete control over major risks, take preventive measures and ensure no occurrence of major loss and subversive events.Specifically:

1）Overall coordination mechanism.Firstly, from corporate level, boost centralized and efficient allocation and application of internal resources,promote unimpeded coordination of the industrial chain and longitudinal and horizontal orderliness of the value chain.Secondly, win-win cooperation among member companies, form a resulting force,reinforce shipyard-institution cooperation,ship-equipment cooperation and shipship cooperation.

2）Budget management and control mechanism. Firstly, take cost control as a key point of overall budget management,by refining and breaking down annual budget targets, implement cost control targets, set up a reversed cost mechanism of realizing profit target, and make horizontal and longitudinal decomposition by layers of budget targets. Secondly,implement cost target control, incorporate cost control key indexes into member operation performance assessment scope,strictly set the target of unit cost control and give corresponding assessment rewards and punishments based on actual completion.

3）Information integration mechanism. Firstly, build strategic cost database, push ahead establishing cost data information covering domestic and overseas major shipyards, expand towards equipment manufacturing business, fully tap cost data value, and provide key information for operation and taking order decision and provide reference support for business exploration. Secondly, establish cost control method database and sum up to-the-point, effective empirical practices and theoretical methods for addressing practical problems and improving cost control and refine them into corporate cost control benchmark and standards. Thirdly,intensify dynamic monitoring. Through cost management information system,realize dynamic monitoring of cost control key targets, identify problems and urge solution. Fourthly, conduct all-directional benchmark assessment, actively organize horizontal benchmark analysis with domestic pals and international advanced enterprises as well as longitudinal analysis with similar product costs, seek gaps,reveal shortcomings, and learn from others’ strong points and close the gaps.

4）Risk early warning mechanism.Intensify all process risk control of the project, strengthen project process cost control, set up corresponding organization,identify division of responsibility, build internal control system of strategic cost management, periodically conduct internal control effectiveness appraisal and evaluation, and make continuous improvements based on problem feedback.

5. Practically execute five driving factors

In accordance with overall cost management concept, intensify all employee, all factor and all process cost control, mobilize and organize all corporate people to set up the idea that all costs can be brought under control and practically advance cost control of the whole process of production and management.

1）Investment cost control

At present, shipbuilding suffers severe overcapacity, investment cost control should be placed in an outstanding position. Firstly, change development concept, advance factory drive including investment to innovation drive, strictly control total investment,intensify input-output analysis, and resolutely avoid inefficient investment.Secondly, expedite technical innovation investment in efficiency improvement,especially energetic support to investment in process transformation, digitalization,networking and intelligentization. Thirdly,strive to obtain external financial support,minimize equity fund input and alleviate own capital burden.

2）Manufacture cost control

Carry forwar defficiency improvement in the whole process of production and management and lower manufacturing cost. Firstly, optimal design. Strengthen pre-design study,fully apply value engineering analysis for techno-economic analysis and cost engineering analysis for products, on the basis of ensuring product performance indexes, determine optimal design scheme. Secondly, precise and accurate control of product cost. Constantly improve production technology process and operation model, improve productivity, and shorten product cycle.Thirdly, strict control of quality cost.Establish a systematic management regime system, constantly optimize control process, mend control loopholes and reduce internal and external loss costs.

3）Procurement cost control

In the first place, continuously step up centralized procurement of materials, expand aggregation and scope of centralized procurement and improve market bargaining capability; strengthen material supply chain construction,and rationally allocate quantity purchased. Secondly, implement material procurement tendering price ratio, and perfect supplies purchasing management regime. Thirdly, step up pricing trend study of raw and auxiliary materials in a bid to improve capability of timely purchasing at bottom prices and save procurement funds.

4）Labor cost control

Centering on labor productivity improvement and labor cost reduction,reasonably set up organizational body,scientifically staff personnel, rationally control management staff and proportion of production auxiliary personnel, fully symbolize benefit oriented principle,verify salary growth budget of all types of personnel and perfect the salary growth and economic benefit linkage mechanism.

5）Period cost control

As a whole, control period cost on the principle that period cost growth does not exceed business growth of the same period, focus on controlling controllable,semi-variable and consumption cost expenditure, strictly control general overhead expenses and non-productive expenditures. Reasonably control selling cost, make strict control overhead expenses, develop various measures to lower financing cost and effectively fend off exchange risks.

In summary, facing cut-throat industrial competition, improving management is a key if shipyards are to seek survival and boost development.In the course of promoting strategic cost management and improving current cost management model, practically and efficiently propelling strategic cost management engineering is a practical need and the only way out, it is highly necessary to do solid work, in fact,strategic cost managers of shipyards still have a long way to go.

(This essay is based on CSSC 2018 Middle-Aged and Youth Thematic Study Group Project, the group leader and writer is Li Haitao, members include Sun Changqing, Min Huidong, Xiang Jingqian,Qian Fenglin, Yuan Shi, Sun Liang and Han Dongwang.)