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Cost Management - Essay Example

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Cost Management

Using learning lessons from General Electric, and through referencing personal experiences with cost management, learning associated with cost management and future projections about competent business planning can be developed. It is necessary to understand the demand environment and operational costs in order to successfully meet budget guidelines and secure effective cost management. Main Issues Mattel company did not fully understand its demand environment, thus the business was making decisions, strategically for long-term financial gain, that would not be sustained according to models of product life cycle. The product life cycle model recognizes the gains associated with new product launch and then follows the viability of products throughout the time period where product would be accepted by consumer markets. The life cycle model recognizes that products will eventually reach a maturity stage where new technologies or innovations begin to make demand volumes obsolete, thus the business must be equipped to launch new products to offset any losses that occur. Dooley (2005) offers that it is extremely difficult to predict whether a product will have a long and profitable life cycle or whether the product, due to competition or even changing social and lifestyle needs, will have a long period where profit is sustainable. Mattel acquired a software company, Learning Co., as a means of diversifying its product portfolio and thus offering customers more selection of product and to ensure the business sustained its quality brand in the minds of buyers. Some of the main software titles were Carmen Sandiego and other relevant software characters that were associated with lifestyle and child values. Mattel believed that this decision would provide software titles with significantly-long product life cycles, thus offering more profitability through sales volumes. Soon after acquisition, Mattel realized that the decision to utilize these particular software names was not leading to the profit expected, thus leading to higher operational costs without sales volumes to sustain projections. It was assumed that the Carmen Sandiego, and other relevant brands, would have a much longer growth period in the life cycle than consumers actually favored. The end result: Mattel was left with very high operational costs, such as inventory and supply chain, which left the business with little options but to divest some of its business holdings. General Electric, on the other hand, understands the importance of not only diversifying its portfolio of products, but to create systems and feedback mechanisms that recognize the majority of costs during the planning process. Mattel was looking too closely at the consumer environment without realizing that some products would ultimately reach the maturity stage long before projections suspected. What did this indicate? It suggested that Mattel was not proactive in creating a well diversified product line, the firm did not understand fully what was driving consumer demand ratios, and that Mattel had significant failures associated with manufacture and related operational costs. Mattel, in its proverbial effort to put all of its eggs in one software basket, did not create a supply chain methodology that would sustain unique product innovation and growth ...Show more

Summary

RUNNING HEAD: Cost Management Cost Management Course Name Instructor Date Cost Management Introduction Cost management represents all of the different expenses, operations, and financial activities associated with operating a business and ensuring that all aspects of business meet with budgetary needs…
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