Costing value chain relationships: A challenge for strategic cost management and value chain management

Abstract

The global business environment is changing rapidly. Among the many changes are a number of challenges; one important change being the increase in inter-organisational relationship management and the challenge being – how do we cost the transactions between these increasingly different value chain network structures. Strategic cost management (and analysis) has attempted to explore these issues. Shank J and V Govindarajan (1993) probably offered the most visible approach of the 1990s using Porter’s value chain and contributions from Scherer (1980) and Riley (1987) Chandler (1962). Shim and Siegal (2000) identified the value chain as being important from two perspectives; strategy and administration and management accounting. Macri, Silvi and Zanoni (2000) began to tackle the issues of inter-organisational relationships. This paper discusses the characteristics of the “new economy” business model and proposes that the ‘structural costs’ of Scherer and the ‘executional’ costs of Riley be reviewed in the context of the value chain network structures that are increasing in number and application. To do this we discuss the interpretations of value from a purchaser and a corporate perspective, introduce the notion of value builders and value drivers as planning and costing concepts and revisit activity based management on the way to making proposals for a value chain network costing approach.