Research And Analysis Of Rebuilding The FAW-VW's Cost Control System In The New Situation

In the condition of the intensive competition in the car market, variousmanufacturers have taken price competition. The price competition tests thecapacity of the competitor, especially the cost level of the competitor. Lowercost will bring more profit and more ability to carry further competition. Socost is top important for all the manufacturers. Nevertheless high-end orlow-end car they produce, a complete cost controlling system is very necessary.FAW-VW's profit rate keeps declining after development and competition inseveral years, which proved there be shortages in the current system. New costcontrol idea must be researched in order to make our factory survive anddevelop.Before do research of the problem of cost control, we shall make study ofthe character of cost, and make study of the value chain and supply chain.Value chain begins with material purchasing, and then manufacturing,assembling, transport and finally to the customer. Value chain analysis willdiscover the operation activities inside the enterprise. Every enterprise has itsown internal value chain. And it plays a role in each industry value chain. Theupstream units constitute the supply chain of the enterprise. From the characterof cost we can find that the enterprise will finally accept the cost from thesupply chain and the inner value chain. As a carmaker, FAW-VW locates at theend of the value chain, and faces the customers directly. Its supply chaincontains material supplier, spare parts supplier, etc. Its value chain containsR&D, producing, constructing, logistic, sales and service. FAW-VW's cost isthe total of each supplier's cost and inner cost. The project figure of AUDI-A4shows that the cost proportion of supply chain is more than 60% and that ofinner value chain is only less than 10%..So we can draw the conclusion thatthe cost from supply chain is the majority.FAW-VW's cost controlling system is made up with budget controllingsystem, cost center system, investment controlling system, etc. Costcontrolling organization involves Controlling Department, FinanceDepartment and the section or staff with function of controlling in differentdepartment. This system was simulated from Germany Volkswagen Companyoriginally. It had acted as an important role in the past years. But from it'srecent years performance, it can not inspire the cost controlling consciousnessin supply chain and value chain, it can not be able to transmit the cost pressureto the whole value chain, and it has no measure to control the cost of supplychain. So, If we want rebuild FAW-VW's cost controlling system, the measuremust refer to the problem talked above!Cost management was referred to cost calculation firstly, and thenbecame cost controlling idea at the basic of cost calculation, companied withlots of cost controlling methods. But in modern society, the work division getsmore and more narrow. The enterprise only keeps the core business. So, thetraditional cost controlling cannot cover all the producing process, the rangeand the time of control is very limited. The competition in modern society hasbecome among the value chains lead by enterprises instead among enterprisesthemselves. In order to keep the competition ability of value chain, there mustbe one or more enterprise-leads in value chain. The leader has always beenacted by the whole carmaker. FAW-VW must be responsible to lead andmanage the value chain, and also lead the value chain to control cost.Some principles must be followed in supply chain cost controlling. Thereare Whole Benefit Principle, Economy Method Principle, cost integrateprincipal, etc. In practice FAW-VW must construct a system bear the costpressure commonly. When a new project is starting, we shall make a profitplan, allocate benefit between our company and the supply chain by usingTarget Price Method. First. FAW-VW will calculate his target cost for eachparts based on forecasting retail price, target profit rate, and internal cost status.Then put the target forward to the supplier, and select out the supplier who canaccept the target. Thus, a supply chain will be formed with target profit. Aftersupply chain has been formed, the terminal input will change due to thechanging of environment. The input minus will cause cost pressure to thewhole value chain. FAW-VW will encounter the pressure directly, but it hasno enough ability to bear the pressure. So FAW-VW must inspire the supplychain to share the pressure together. We shall make the price reduction planwhen we are forming the chain, or adjust the supply chain, eliminate theenterprise which cannot reduce price.Cost controlling to supply chain must ordinate the operation activities inthe whole supply chain. Some integration work must be done to reorganize theproduct cost, operation cost and transaction cost in supply chain. First, we canintegrate the supply cost. According to some parts that come from similar rawmaterial, we can integrate their purchase channel into a common channel, andselect a common raw material supplier for them. By doing this, the partssuppliers will get lower price than before. Secondly, we shall integrate thelogistic business in the supply chain, and adopt 3-rd Part-Logistic method. We...