FAW-VW Cost Management Study And Revelation

FAW-VW is one of the corporations most early introducing the R3 platform from SAP, and its cost calculation is so detailed that any car would be calculated, its cost analysis and controlling also could be detailed to any part, and the FAW-VW realized the wistfully dream which many auto companies want to get and at mostly eliminate the effect of the information asymmetry about cost with the least information cost. On the background of the commonly low cost management level in the auto industry, the paper choose the FAW-VW as the research sample and hope it be helpful for improving the cost management in auto industry.In fact the evolution history of the cost management theory and practice is how to uses the existing technical means to reach the efficiency and reality of the cost information transferring with the least information cost. Generally, cost management theory could be divided into the two methods: variable costing/full costing and activity-based costing/strategy costing, the former represent the traditional cost management theory and the latter represent the modern cost management theory.In twenty-first century, the corporations in our country have faced the dramatic changes of inside and outside environment. More and more corporations begin to think much of the idea and technique of strategy management. But the traditional cost management system, which puts emphasis on the information provided within the company management, still limits in the costing method and the costing management regulations. Costing management regulations actually are the attachment of financial accounting, which obviously doesn't fit the never ending changed competitive environment. Therefore, putting the cost management into the strategy view already is the new trench of the cost management and it also be the new road of cost management for the corporations in our country.Just because of the so many shortcomings of the traditional cost management in corporation, such as not connecting it with strategy management of corporation and not fitting itself with the changed outside surrounding to get the sustainable competition advantage, which are the chief problem the corporation are facing, therefore the corporations must put the emphasis on the competition strategy and not blindly cutting down the cost only for cost decrease. Additional, the objects of the traditional cost management are mostly inner production process in the corporations, basically take no account of the supply and sale processes, and turn a blind eye to the outside value chain.In the open and competitive market surrounding, it is helpful for the corporations to reach the strategy aim through the cost management of correlated value chain outside of the corporations. Accordingly, the corporations should build the cost management theory and the practice foundation on the scientific analysis of value chain and establish the open, long-term, comprehensive cost management mode.To be one of the most excellent auto production companies in our country, mostly because the FAW-VW have a series of management systems. In FAW-VW, the costs calculation could be detailed to the single auto and track the part changes so that eliminates the inner information asymmetry. The shaping of this excellent ability has much related with using the ERP system of SAP R3 platform. Therefore as the cosmically manufacture industry such as the auto industry, the corporations must apply the ERP systems fitting themselves for each one in the information-based competitive era. After adoption ERP systems, the corporations could use ABC cost method and management and at mostly revert the original cost, which provide the strongly decision support for management governors.Characteristics of costing in FAW-VW:1. Adapted well to requirements from the accurate cost calculation and fast cost analysis based on the multi-auto categories and individuation production in FAW-VW. The core of the operation flow in the future FAW-VW is to produce based on the customer individuation order. So there will be thousands upon thousands different auto to be produced so that cost calculation must be detailed to each auto the customer order. In FAW-VW, costing methods have already keep up with the international auto enterprises and also could be regards it as the most advanced in auto industry in our country.2. Cost calculation could be detailed to each car produced in Faw-VW, and the BOM of each car is updated to the newest state (the BOM of cost calculation is completely synchronized with the production).3. The standard price of material must updated from the actually supply price in the same month, so cost calculation includes the change of material price.4. The supply expenses and wage manufacture expenses should be calculated by standard price, which avoids the random fluctuation of each car cost using the moving average method. The expenses may be distributed more reasonably and be helpful for deviation variance analysis.5. Parallel carry forward standard cost method fits the multi-step and multi-auto categories and make the cost calculation simpler, faster and more accurate, which also provides the support system for spare parts self-produced cost calculation.6. Powerful cost analysis function. Cost calculation is got based on the newest condition of parts, therefore cost analysis could track the any cost change from each part. Cost calculation items are completely detailed based on the material obtained mode and related expense activity content so that the cost analysis is much clear.Inspiration from the cost management in FAW-VW:It is very important for the auto corporations to build the ERP system platform for cost management. We could analyze the value-added of product in any each production step based on ERP system. It will be clear about the difference of the standard cost during the any production step, which provides the detail data to eliminate difference-induced factors. The more comprehensive and more complete cost basic data provide the strong basement for product cost decision analysis.Activity-based cost is effective method for cost calculation in competitive market.Activity management is to take the enterprise as the activity aggregation, which combines the series of activities demand-drive from customer. It tries to increase the activity efficiency which add the customer value and eliminate activity which doesn't add the customer value so that reach the sustainable improvement in operation of corporation. The activity not adding the customer value or adding value but inefficient activity is called not value-added activity, the cost from which is called not value-added activity cost. Activity-based cost management includes: activity recognition, activity chain, activity drivers analysis and reporting of not value-added activity. And it always uses the following methods to decrease cost: activity eliminating, activity choosing, activity diminution and activity sharing.