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WK #3 (Cost): Cost Structure Analysis |
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Understand the Cost Structure before making Supply Chain decisions
The following table shows a comparison between a "Low
Labor" Cost Structure and a "High Labor" Cost Structure".
Table 1 - Cost Structure Comparison
Cost
Component
|
Low Labor |
High Labor
|
| Material |
70% |
15%
|
| Labor |
03%
|
50%
|
| Overhead |
27%
|
35%
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| Total |
100%
|
100%
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When making decisions it is important to note where effort will result in the most results:
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Low Labor Cost: Attacking the Labor cost for a "Low
Labor" cost structure will not have much effect. A 50% reduction
in the Labor Cost will result in only a 1.5% savings. For this
example the effort should go into attacking Material Cost which is 70%
of the cost.
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High Labor Cost: In this case attacking the Labor cost can have a large effect. A 50% reduction in the Labor Cost
will result in a 25% overall savings. For this example the effort should
go into attaching Labor Cost which is 50% of the cost.
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Knowledge Base 
