The Edge Blog: Insights on business transformation, practical applications and everything in between

Power Sector - Opportunities within the Challenges

Background: With the advent of renewable energy sources, social media connectivity, and a revolution in electric vehicles (EV), the traditional power industry (especially utilities) is facing challenges that it has never seen before. The industry must optimize the cost of business and meet customer expectations. After the Paris climate accord of 2015, a consortium of 121 solar resource rich countries, also known as the International Solar Alliance, are working on reducing the cost of technology and device financing. For future energy requirements, many nations are now encouraging the use of non-conventional sources of energy, while increasing costs and taxes for the conventional sources.

Collaborative Cost Management

Many industrial companies utilize a structured method for product design. Continuous estimation and tracking of the product cost is very important throughout the product development lifecycle. As the product design matures, the cost structure often shifts significantly. There are various reasons for this shift, including:

Consumer Packaged Goods Trends

The Consumer Packaged Goods (CPG) industry is facing huge challenges with volatile commodity prices. Customers are highly sensitive to product pricing. Customer behavior and needs have considerably changed, due to a preference for healthier foods, high sustainability, transparency and decreasing brand loyalty. The industry is also experiencing limited pricing power; due to retailer consolidation. Amazon’s purchase of Whole Foods, along with Walmart’s purchase of Jet.com, have broadened their horizons, by operating retail stores and ecommerce respectively. Rising commodity prices, customer price sensitivity, changing customer behavior, and retail consolidations have resulted in lower profit margins.

The Changing Face of Sourcing

  2010 2014 2018 AND BEYOND
Methods Low Cost Sourcing Total Cost of Ownership Dynamic Sourcing
Drivers Material Cost Reduction Landed Cost Quicker Response to Market
Benefits Instant Cost Reduction E2E Reduction Agile: Adapt to Change

Activity Based Management as a Cost Reduction Technique

Independent of the condition of the economy, at any point, there is an increasing need within organizations, in every industry, to have more transparency across the overall supply chain costs and the factors that influence it. Activity Based Management (ABM) is a technique used to provide this visibility, and thereby help improve strategic and operational decisions in the organization. ABM involves identifying activities that a business performs, and carrying out a value chain analysis, using Activity Based Costing (ABC).

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