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11
Relative Cost Position
Bain used RCP to help its client Yummy Gum improve its profitability.
Yummy Gum* - Background
Situation:
• Yummy gum has a solid hitchhiker position in the premium gum
category. However, Yummy’s 1997 returns are well below expectations
Complication:
• Yummy has tried to compete by introducing new and
costly SKUs and increasing advertising. Its main competitor has focused on cost reduction
• Relative Cost Position • Experience Curve • Cost Sharing Analysis • Best Demonstrated Practice • Value Chain Analysis • Profit Hunt • Product Line Profitability / Cost
element for key competitors based on primary data
• Triangulate using cost data
from multiple sources
• Compare competitors’ cost
structures to client’s cost structure at macro level
• Which cost elements might
benefit from different business practices?
5
Relative Cost Position
•The relative cost position (RCP) concept •Applications •RCP Steps •Client example •Challenges •Key takeaways
$2.00
$1.75
$1.50
Overhead
$1.45
$1.00
Labor
$1.35
$1.30
Lowest cost Practical cost
$1.10
$1.27
Unit Cost (in Dollars)
$0.50
Materials
$0.00 Client-current Client A Competitor B Competitor C
financial data
More accurate, more time intensive
Less accurate, less time intensive
Oftentimes we use a combination of these two approaches
9
Relative Cost Position
• Build up cost bars category by category • Reality check results against similar companies
• Focus on areas with the greatest potential for cost
savings
Doing an RCP involves several steps:
RCP Steps
Process Steps Map the business value chain
Key Success Factors
• Map value chain from end to end (e.g., raw materials to
Relative Cost Position
Relative Cost Position
•The relative cost position (RCP) concept •Applications •RCP Steps •Client example •Challenges •Key takeaways
competitors have in a price war?
• What is the client’s market
position?
• What are the strategic implications
of the full potential cost position?
Tactical questions
Agenda
2
Relative Cost Position
Relative cost position (RCP) is a key analytical tool used for cost analysis.
Context
Costs
Customers
Competitors
Capabilities
Allocation / Activity Based Costing
• Overhead Analysis • Fixed/Variable Analysis • Direct/Indirect Analysis
3
Relative Cost Position Full Potential
Bain uses RCP to determine a company’s practical full potential cost position based on a comparison of its unit costs with those of its competitors and an understanding of the client’s business.
Clienttheoretical
full potential
Client-practical full potential
4
Relative Cost Position
Questions RCP Can Help Answer
RCP analysis helps answer both strategic and tactical questions.
7
Relative Cost Position
•The relative cost position (RCP) concept •Applications •RCP Steps •Client example •Challenges •Key takeaways
Agenda
8
Relative Cost Position
– define key process/business practice differences for major cost elements
– make assumptions about the cost impact of differences
• Test assumptions vs. overall
• Adjust for client’s situation (e.g., different strategy (high
quality vs. low quality), different equipment, different plant locations)
• Determine how to take advantage of the improved
Agenda
6
源自文库
Relative Cost Position
Bain has used RCP effectively for many clients. Examples of Bain work include:
Applications
• Bain identified $29MM in annual savings for a chewing gum manufacturer. An
• Where should we focus our cost
reduction efforts? (e.g., wage rates, amounts of raw material inputs)
• Which cost elements would
decrease significantly with an increase in scale?
Build, compare, and reality check cost bars
Calculate practical full potential cost position and savings
Draw strategic implications
• Be persistent and creative, but ethical
• Bain helped a client in the diaper business take back market share it had lost;
its share increased by 10% – the client had a scale-driven cost advantage, but was maintaining a significant price umbrella – Bain used an RCP to identify a price above the client’s breakeven but below the competitor’s breakeven – this strategy had a substantial positive impact on the client’s sales and profits
There are two ways to approach an RCP: detailed bottom-up analysis or top-down analysis.
Approaches
Detailed bottom-up analysis
Top-down analysis
• Build up each major cost
RCP analysis led to a decrease in raw materials usage, better raw materials purchasing, process improvements, and more efficient inventory management.
finished product or delivery)
Identify cost elements and drivers
• Tie costs to operations not accounting categories
Scour information sources for cost data on clients and competitors
cost position
10
Relative Cost Position
•The relative cost position (RCP) concept •Applications •RCP Steps •Client example •Challenges •Key takeaways
Agenda
Strategic questions
• In what areas do our competitors
have the biggest cost advantage?
• What is driving competitors’
profitability?
• How much flexibility would our
• Bain prevented a client from making a poor acquisition decision in the bakery
products market. The RCP showed that one competitor of the target had a 30% cost advantage and that the target would not be able to close that gap.
Relative Cost Position
Bain used RCP to help its client Yummy Gum improve its profitability.
Yummy Gum* - Background
Situation:
• Yummy gum has a solid hitchhiker position in the premium gum
category. However, Yummy’s 1997 returns are well below expectations
Complication:
• Yummy has tried to compete by introducing new and
costly SKUs and increasing advertising. Its main competitor has focused on cost reduction
• Relative Cost Position • Experience Curve • Cost Sharing Analysis • Best Demonstrated Practice • Value Chain Analysis • Profit Hunt • Product Line Profitability / Cost
element for key competitors based on primary data
• Triangulate using cost data
from multiple sources
• Compare competitors’ cost
structures to client’s cost structure at macro level
• Which cost elements might
benefit from different business practices?
5
Relative Cost Position
•The relative cost position (RCP) concept •Applications •RCP Steps •Client example •Challenges •Key takeaways
$2.00
$1.75
$1.50
Overhead
$1.45
$1.00
Labor
$1.35
$1.30
Lowest cost Practical cost
$1.10
$1.27
Unit Cost (in Dollars)
$0.50
Materials
$0.00 Client-current Client A Competitor B Competitor C
financial data
More accurate, more time intensive
Less accurate, less time intensive
Oftentimes we use a combination of these two approaches
9
Relative Cost Position
• Build up cost bars category by category • Reality check results against similar companies
• Focus on areas with the greatest potential for cost
savings
Doing an RCP involves several steps:
RCP Steps
Process Steps Map the business value chain
Key Success Factors
• Map value chain from end to end (e.g., raw materials to
Relative Cost Position
Relative Cost Position
•The relative cost position (RCP) concept •Applications •RCP Steps •Client example •Challenges •Key takeaways
competitors have in a price war?
• What is the client’s market
position?
• What are the strategic implications
of the full potential cost position?
Tactical questions
Agenda
2
Relative Cost Position
Relative cost position (RCP) is a key analytical tool used for cost analysis.
Context
Costs
Customers
Competitors
Capabilities
Allocation / Activity Based Costing
• Overhead Analysis • Fixed/Variable Analysis • Direct/Indirect Analysis
3
Relative Cost Position Full Potential
Bain uses RCP to determine a company’s practical full potential cost position based on a comparison of its unit costs with those of its competitors and an understanding of the client’s business.
Clienttheoretical
full potential
Client-practical full potential
4
Relative Cost Position
Questions RCP Can Help Answer
RCP analysis helps answer both strategic and tactical questions.
7
Relative Cost Position
•The relative cost position (RCP) concept •Applications •RCP Steps •Client example •Challenges •Key takeaways
Agenda
8
Relative Cost Position
– define key process/business practice differences for major cost elements
– make assumptions about the cost impact of differences
• Test assumptions vs. overall
• Adjust for client’s situation (e.g., different strategy (high
quality vs. low quality), different equipment, different plant locations)
• Determine how to take advantage of the improved
Agenda
6
源自文库
Relative Cost Position
Bain has used RCP effectively for many clients. Examples of Bain work include:
Applications
• Bain identified $29MM in annual savings for a chewing gum manufacturer. An
• Where should we focus our cost
reduction efforts? (e.g., wage rates, amounts of raw material inputs)
• Which cost elements would
decrease significantly with an increase in scale?
Build, compare, and reality check cost bars
Calculate practical full potential cost position and savings
Draw strategic implications
• Be persistent and creative, but ethical
• Bain helped a client in the diaper business take back market share it had lost;
its share increased by 10% – the client had a scale-driven cost advantage, but was maintaining a significant price umbrella – Bain used an RCP to identify a price above the client’s breakeven but below the competitor’s breakeven – this strategy had a substantial positive impact on the client’s sales and profits
There are two ways to approach an RCP: detailed bottom-up analysis or top-down analysis.
Approaches
Detailed bottom-up analysis
Top-down analysis
• Build up each major cost
RCP analysis led to a decrease in raw materials usage, better raw materials purchasing, process improvements, and more efficient inventory management.
finished product or delivery)
Identify cost elements and drivers
• Tie costs to operations not accounting categories
Scour information sources for cost data on clients and competitors
cost position
10
Relative Cost Position
•The relative cost position (RCP) concept •Applications •RCP Steps •Client example •Challenges •Key takeaways
Agenda
Strategic questions
• In what areas do our competitors
have the biggest cost advantage?
• What is driving competitors’
profitability?
• How much flexibility would our
• Bain prevented a client from making a poor acquisition decision in the bakery
products market. The RCP showed that one competitor of the target had a 30% cost advantage and that the target would not be able to close that gap.