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Cost model based sourcing: a strategy for Cummins Engine Company
2000 (English)Independent thesis Advanced level (professional degree), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

The objective with our assignment was to present a framework for cost-modeling. This included answering the following questions • How could Cummins build cost models in a structured way? • Should Cummins focus just on price or on TCO when choosing suppliers? • How to build TCO models on the component level? • How can we put monetary values on the cost elements in TCO that so far just has been measured in soft values? • What are the areas of use for cost modeling? Based on a theoretical framework including a four-step model for costmodeling, target costing, supplier economics, total cost of ownership in the negotiation process, case study at Cummins Engine Company and a benchmark at Honda of North America the report introduce a model for how Cummins Engine Company could work with costmodeling in a structured way. Finally an analyze of the costmodels are performed and a plan for what actions that need to be done in order for Cummins to work with cost modeling in an efficient manner is presented. The work concludes that the elements besides invoice prize included in the TCO (development, tooling, transportation, BIS quality, delivery problems and warranty) adds 28% to the invoice price. Further the work concludes that a big part of the acquisition cost are warranty costs, costs due to delivery problems and BIS Quality problems. Without a TCO perspective there would be a risk that these costs would be left out of the analysis done when selecting suppliers. Since purchased material is such a big expense, we believe that the whole automotive industry could gain a lot from having a TCO focus. To the second point that was made, we think that a focus on TCO could play an important role when building a world class supply base. It could for instance be used to differentiate the sourcing strategies depending on what the different TCO models for the suppliers looks like.

Place, publisher, year, edition, pages
Keyword [en]
Technology, strategy, sourcing, TCO, ownership, suppliers, economics, purchasing, cost, modeling, models, drivers, procurement, target, costing
Keyword [sv]
URN: urn:nbn:se:ltu:diva-43588ISRN: LTU-EX--00/175--SELocal ID: 173f9c14-f3fd-40fc-a4b2-f615a1dc1fbcOAI: diva2:1016822
Subject / course
Student thesis, at least 30 credits
Educational program
Civil Engineering programmes 1997-2000, master's level
Validerat; 20101217 (root)Available from: 2016-10-04 Created: 2016-10-04Bibliographically approved

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