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1、1,Agenda,The relative cost position (RCP) concept Applications RCP Steps Client example Challenges Key takeaways,2,Context,Relative Cost Position Experience Curve Cost Sharing Analysis Best Demonstrated Practice Value Chain Analysis Profit Hunt Product Line Profitability / Cost Allocation / Activity
2、 Based Costing Overhead Analysis Fixed/Variable Analysis Direct/Indirect Analysis,Costs,Customers,Competitors,Capabilities,Relative cost position (RCP) is a key analytical tool used for cost analysis.,3,Full Potential,Bain uses RCP to determine a companys practical full potential cost position based
3、 on a comparison of its unit costs with those of its competitors and an understanding of the clients business.,Lowest cost,Practical cost,4,Questions RCP Can Help Answer,RCP analysis helps answer both strategic and tactical questions.,Strategic questions,Tactical questions,In what areas do our compe
4、titors have the biggest cost advantage? What is driving competitors profitability? How much flexibility would our competitors have in a price war? What is the clients market position? What are the strategic implications of the full potential cost position?,Where should we focus our cost reduction ef
5、forts? (e.g., wage rates, amounts of raw material inputs) Which cost elements would decrease significantly with an increase in scale? Which cost elements might benefit from different business practices?,5,Agenda,The relative cost position (RCP) concept Applications RCP Steps Client example Challenge
6、s Key takeaways,6,Applications,Bain identified $29MM in annual savings for a chewing gum manufacturer. An RCP analysis led to a decrease in raw materials usage, better raw materials purchasing, process improvements, and more efficient inventory management. Bain helped a client in the diaper business
7、 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 clients breakeven but below the competitors breakeven this strategy had a substantial positive
8、 impact on the clients sales and profits 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.,Bain has used RCP effectively for
9、 many clients. Examples of Bain work include:,7,Agenda,The relative cost position (RCP) concept Applications RCP Steps Client example Challenges Key takeaways,8,Approaches,There are two ways to approach an RCP: detailed bottom-up analysis or top-down analysis.,Detailed bottom-up analysis,Top-down an
10、alysis,Build up each major cost element for key competitors based on primary data Triangulate using cost data from multiple sources,Less accurate, less time intensive,Compare competitors cost structures to clients cost structure at macro level define key process/business practice differences for maj
11、or cost elements make assumptions about the cost impact of differences Test assumptions vs. overall financial data,More accurate, more time intensive,Oftentimes we use a combination of these two approaches,9,RCP Steps,Map the business value chain,Identify cost elements and drivers,Scour information
12、sources for cost data on clients and competitors,Build, compare, and reality check cost bars,Calculate practical full potential cost position and savings,Draw strategic implications,Process Steps,Key Success Factors,Map value chain from end to end (e.g., raw materials to finished product or delivery
13、),Tie costs to operations not accounting categories,Build up cost bars category by category Reality check results against similar companies,Focus on areas with the greatest potential for cost savings Adjust for clients situation (e.g., different strategy (high quality vs. low quality), different equ
14、ipment, different plant locations),Determine how to take advantage of the improved cost position,Be persistent and creative, but ethical,Doing an RCP involves several steps:,10,Agenda,The relative cost position (RCP) concept Applications RCP Steps Client example Challenges Key takeaways,11,Yummy Gum
15、* - Background,* Disguised client case,Yummy gum has a solid hitchhiker position in the premium gum category. However, Yummys 1997 returns are well below expectations,Yummy has tried to compete by introducing new and costly SKUs and increasing advertising. Its main competitor has focused on cost red
16、uction,How can Yummy improve profits in a premium market that requires innovation and strong brand equity?,Situation:,Complication:,Question:,Bain used RCP to help its client Yummy Gum improve its profitability.,12,RCP Steps,Map the business value chain,Identify cost elements and drivers,Scour information sources for cost data on clients and competitors,Build, compare, and reality check cost bars,Calculate practical full potential cost position and savings,Draw strategi
