Home' Australian Pharmacist : Australian Pharmacist June 2014 Contents Australian Pharmacist June 2014 I ©Pharmaceutical Society of Australia Ltd.
CONTINUING PROFESSIONAL DEVELOPMENT
SUPPORTING PHARMACY PRACTICE
1. Strategic cost management:
a) Focuses internally and identifies the
biggest cost drivers and manages
profitability by reducing the biggest
b) Focuses internally and externally on
what is the best strategic direction to
steer the pharmacy’s sustainability.
c) Identifies cost drivers on a strategic
context, manages these cost drivers
synergistically rather than in isolation;
and ultimately, strengthens the strategic
position of the pharmacy.
2. Which of the following statements is
a) A pharmacy ’s SG&A is probably the
most efficient and least intrusive
primary cost levers to tackle cost
b) Assigning KPIs can help retail managers
monitor and manage each of the
c) Low cost and efficient marketing
campaigns such as trigger emails/text
remainders, the use of social media,
and cost effective loyalty program are
viable options compared to traditional
high cost catalogue prints, distributions
and newspaper advertisements.
d) Strategic cost management is the
most efficient and the only solution to
3. The pharmacy industry is
undergoing turbulent time. Which of
the following statements may NOT
a) Pharmacies should use strategies that
ensure the management of cost drivers
does not compromise on value-adding
to customers, thereby increasing overall
customer satisfaction and loyalty.
b) Pharmacies should immediately reduce
all retail prices as a cost leadership
c) Pharmacies should adopt a process of
focused continuous improvement to
further reinforce their strategic position.
d) Pharmacies should adopt a flexible
culture that champions transformation
and change ensuring that the business
can withstand and adapt to potentially
unpredictable economic factors.
4. Which of the following strategies is
NOT recognised as a generic business
a) Cost leadership.
c) Cost differentiation.
financial resources to pick and choose
their opportunities. At the other end,
businesses in a crisis must act quickly to
reduce costs using every cost lever they
can find. For many businesses, the most
immediate cost savings often come
from streamlining the selling, general
and administrative (SG&A) functions
of the business and aggressively
tackling external spending where
possible.9 In pharmacy, SG&A refers
to the business’s operating expenses
outside of the cost of sales. This may
include marketing and advertising
costs, utilities, maintenance, wages
of non-pharmacy personnel and rent.
Pharmacy SG&A functions do not
have direct impact on customers and
day-to-day operations. It is therefore
easier to make changes without
disrupting the business and customer
relationships. Also, it is important to
align the value and cost drivers of the
business process, assess the current
situation and apply cost management
plans in view of the strategic direction of
Case study continued
Peter analyses his situation, and decides
to focus on SG&A costs as the primary
cost lever, while continuing to pursue
his chosen strategy. He identifies that he
needs to balance short- and long-term
improvements in a tiered approach
in order to strengthen the strategic
positioning of the pharmacy.
Cost management – tiered
A tiered approach to cost management
provides a framework for managers
to work through once they have
formulated their strategy.
The first tier to be considered may
include inventory management,
marketing and advertising, dispensary
processes and activities and other
SG&As. The second tier may include
human resource management,
procurement management, and
merchandise management, including
prices and customer service
expectations and activities. The third
tier is about embedding a process of
continuous improvement on a regular
and ongoing basis.
In times of uncertainty and harsh
economic conditions, the instinctive
reaction is to cut costs. Knee jerk or
panic-induced cost cutting can be
counter-productive and damaging
to the business. Conventional cost
management follows the formula that
when times are tough, pharmacies
should ‘cut and slash’ to become
more profitable again. In comparison,
SCM holds that cost cannot be reduced
at the expense of business strategy and
the cost drivers must not be managed
in isolation of each other. Underpinned
by a considered and informed strategic
direction, pharmacies are able to
identify cost drivers and redirect cost
management actions from a strategic
and timely perspective.
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al. Target costing: The Next Frontier in Strategic Cost
Management. New York: McGraw-Hill; 1997.
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Emphasis. New York: McGraw-Hill; 1999.
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Management Accounting. Toronto: Prentice Hall; 2002.
8. Porter ME. Competitive Strategy : techniques for analyzing
industries and competitors New York: The Free Press; 1980.
9. Deloitte. Managing Cost in a DownturnMarch 2009.
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