MBA4

JOURNAL OF INFORMATION, KNOWLEDGE AND RESEARCH JOURNAL OF
INFORMATION, KNOWLEDGE AND RESEARCH IN

BUSINESS MANAGEMENT AND ADMINISTRATION
COST MANAGEMENT STRATEGIES FOR
ENHANCED OPERATIONAL EFFICIENCY: SOME
EMPERICAL EVIDENCE
DR. MANOJ P K
Lecturer Tec!"#$M%"%&e'e"t(, De)t* #+ A)),-e. Ec#"#'-c/
C#c!-" U"-0er/-t1 Sc-e"ce %". Tec!"#,#&1 K#c!-, Ker%,% 2 345 655 INDIA(
manoj_p_k2004@yahoo.co.in
ABSTRACT :World over the significance of productivity and quality in industrial production has reached its
peak today, as a result of the ever-growing competition in the wake of globalization pressures sweeping across
the world. There is a heightened need to improvise the cost effectiveness of manufacturing processes, while at
the same time maintaining quality, in order to withstand the pressures of competition. It has become imperative
for businesses to constantly seek new and innovative means to production processes and manufacturing
techniques, and new frontiers of technology for enhanced competitiveness of operations. In the above contet,
this paper seeks to make an overall review of the new manufacturing scenario in the developing world with
special reference to India, study the cost management system of a !"# in $erala %viz. $&'()*,and suggest
suitable strategies for enhanced cost competitiveness of the company.
Ky T!m"# Man$%ac&$!in' Comp&i&i(n"") Bnchma!kin') P!o*$c&ion +$nc&ion) Roi.
INTRODUCTION
World over the significance of productivity and quality in industrial production has reached its peak today, as a
result of the ever-growing competition in industry and business, primarily because of the pressures of
globalization. There is a heightened need to improvise the cost effectiveness of manufacturing processes, while
at the same time maintaining quality, to withstand the pressures of competition. Accordingly, it has become
imperative for businesses to constantly seek new and innovative means to production processes and
manufacturing techniques, and new frontiers of technology for enhanced competitiveness of operations. n this
conte!t, this paper seeks to "i# make a macro level review of the manufacturing scenario in the developing world
with special reference to ndia, "ii# make a micro level study of the cost management system of a public sector
company "$overnment of %erala#, %A&'( "%erala Agro-&achinery 'orporation# including benchmarking it
with the industry leader, and "iii# suggest suitable strategies for enhanced cost competitiveness of the company.
I* MANUFACTURING IN THE DEVELOPING WORLD IN THE ONGOING GLOBALI7ED ERA
8*8* Ne9 M%"u+%ctur-"& C#"te:t %". t!e C#')et-t-0e"e// I')er%t-0e
$rowing interest in industrial competitiveness has now currently become a global phenomenon prominent
across all economies)developed and developing, though it initially originated in the developed world. Wignara*a
"+,,-#
-
has observed, .'oncerns about the process of industrial restructuring in an integrated world economy
have sparked widespread interest in the concept of competitiveness as applied to national economies and
enterprises within them. This interest originated in the developed world but has recently spilled over into
developing countries and economies in transition/. The central issue of competitiveness of developing countries
is .the creation of efficient industrial capacity/
+
. Accordingly, a new manufacturing conte!t is fast emerging in
the developing world wherein apart from knowledge and technological progress, five mutually reinforcing
processes are vitally significant, viz. "i# revolutionary changes in 'T, "ii# emergence of globally integrated
value chains, "iii# increasing global competition associated with falling trade barriers, "iv# new rules of the game
"introduced through WT( and by foreign buyers of output#, and "v# changing consumer demands.
0

8*5* St%&"%"c1 -" I".-%" M%"u+%ctur-"& %". Sect#r%, I';%,%"ce/
n ndia, enhancement of manufacturing competitiveness has got added significance in the ongoing 12$ regime,
particularly in the later years of globalization "viz. +,,,s# because of intensified competition. n fact, even
before the 12$ era the e!istence of a 3relative stagnation4 was conclusively demonstrated by Ahluwalia "-567#
8
,
between 9: -5;< and 9: -56,, and that this 3relative stagnation4 continued even after 9: -56,. =agara*
"+,,;#
7
who has continued this work in the -56,s and found that the growth rate during -56,-6- to-56;-6< is
higher than that during -5;;-;< to -5<6-<5> but comparable to the one during -575-;, to-5;7-;; period. The
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already e!isting stagnation problem has been continuing in the ongoing 12$ era also, in spite of an upturn in the
eighties. The problem has in fact worsened owing to growing imbalance between ma*or sectors of the economy,
characterized by fast growing share of services sector, constantly declining share of agriculture sector and
stagnating industry sector "particularly the manufacturing sub-sector within it#. This has prompted the
$overnment of ndia to set up a specialized body, =&'' "ie. =ational &anufacturing 'ompetitiveness
'ouncil# to promote competitiveness of ndian manufacturing. As of 9: +,,6, the share of agriculture, industry
and services are respectively -<.;?, +5.8? and 70?. As the imbalance between the three ma*or sectors grows,
it is imminent to chalk out urgent policy measures to correct the imbalance "Table #
"2ercentage#
9inancial :ear Agriculture ndustry @ervices Total $A2
9: -57,-7- 75.;, -8.7, +7.5, -,,
9: -5;,-;- 77.-, -<.0, +<.;, -,,
9: -5<,-<- 86.7, +,.<, 0,.6, -,,
9: -56,-6- 8-.7, +-.;, 0;.5, -,,
9: -565-5, 00.5, +<.,, 05.-, -,,
9: -55--5+ +;.<, 0-.0, 8+.,, -,,
9: +,,8-,7 +,.6, +;.,, 70.+, -,,
9: +,,7-,;
BC
-5.5, +;.-, 78.,, -,,
9: +,,;-,<
DC
-6.7, +;.8, 77.-, -,,
9: +,,<-,6
C@
-<.;, +5.8, 70.,, -,,
T%;,e I: Sect#r/ #+ t!e Ec#"#'1 %". t!e S!%re #+ O0er%,, GDP*
@ourceE "-# +conomic "urvey "various years till +,,;-3,<# &(9, $(.
"+# @tatistics of 'entral @tatistical (rganization "'@(#,$(.
F=oteE BCE Buick Cstimates, DCE Devised Cstimates, C@E Carly Cstimates.G
8*A* E"!%"ce. C#')et-t-0e"e// #+ I".-%" M%"u+%ctur-"&: %" I')er%t-0e
9rom Table , it is noted that the share of industries sector to the national $A2 has been at about +<? for the
last two decades or more. (f this, the share of manufacturing sub-sector has been roughly about -<?
throughout. However, going by international standards, this share of manufacturing sector may be observed to
be quite low. "Table #. yer, A., %andaswamy, %., et. al
;
have pointed out, .Without a doubt, manufacturing is
the backbone of the economy in most countries, especially so in fast growing emerging markets. t is clear that
for the ndian manufacturing to successfully distribute wealth across its population, manufacturing has to grow
from its current -<? of $A2 to a number closer to 0,? "which is the standard for most developed economies#./
'ountry Agriculture ndustry &anufacturing @ervices
Irazil 7 0- -6 ;8
Dussia ; 06 -5 7;
ndia -6 +6 -; 78
'hina -+ 8< 00 8-
T%;,e II: C#')#/-t-#" #+ GDP -" BRIC C#u"tr-e/ %/ #+ 5663(
F@ourceE World ,evelopment Indicators -../, The World Iank, J@A., +,,6, pp.+,+-+,8#
ndian manufacturing grew only at ;.0? during -55- to +,,0 as against -+? in 'hina. =@&
<
"+,,;# formulated
by =&'' estimates that to attain the targeted $A2 growth rate of 6 to -, per cent, the country should target a
minimum manufacturing growth rate of -+ per cent per annum. Iesides, the share of manufacturing should be
raised to 0, to 07? by +,+,.
I* INDIAN MANUFACTURING AND COST COMPETITIVENESS
5*8* C!%,,e"&e/ t# I".-%" M%"u+%ctur-"& 2 t!e I//ue #+ C#/t C#')et-t-0e"e//
9or ndian economy to e!hibit a balanced, stable and sustainable growth it is highly imperative that ndian
manufacturing, most importantly the segment comprising of small and medium enterprises "@&Cs#, to grow
phenomenally primarily through improving its competitiveness in terms of costs and quality. n the emerging
scenario of global competition, the need for enhancement of productivity and competitiveness of manufacturing
enterprises need not be overemphasized. Dobust growth in manufacturing is an imperative for creation of better
employment possibilities and overall economic development.
6
Iesides, competitiveness is central to robust
growth of the manufacturing sector.
5
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(ne of the vital means of enhancing productivity and improving quality is through proper cost management. t
is widely recognized that what ndian manufacturing needs the most today is improvement in cost
competitiveness. Degarding cost competitiveness, =akagawa "+,,6#
-,
has observed, .it refers to the edge that
the domestic manufacturers need to have in providing quality products at a certain cost/. &any progressive
organizations have adopted cost competitiveness as the central theme of business strategy. &J1 "&aruti Jdyog
1td.# seeks to attain higher cost competitiveness through enhanced localization, higher productivity etc.
--
t is
worth noting here that, regarding the challenges faced by ndian manufacturing in the emerging scenario, =@&
"+,,8#
-+
points out, inter alia, the following cardinal factors, "i# ensuring cost competitiveness and stimulating
domestic demand, "ii# investing in innovations K technology, "iii# enabling @&Cs to achieve competitiveness
etc.
There are evidences for the declining competitiveness of ndian firms vis-L-vis their international counterparts in
the 12$ era. A study by The +conomic Times "CT# in +,,+ has revealed that the competitiveness of +,+ ndian
companies during 9: -55< to +,,- period has been constantly coming down, from +0.7- "9: -55<# to +,.5+
"9: +,,-#. Iut, that of 8+ &='s "&ulti-=ational 'orporations# has gradually risen during the period, from
+-.8< to +0.-6. $orden K %ato "+,,;#
-0
have observed that the profitability of domestic manufacturing firms
has been adversely affected with the increase in import penetration during the reforms regime "9: -55+ to 9:
+,,+ period# and that this negative effect has been lesser in respect of firms with larger size..
III* COST MANAGEMENT AT KAMCO: AN ANALYSIS
n this section, cost management system at %A&'( "a $ovt. of %erala unit# engaged in agro-machinery
manufacturing is analyzed.
A*8* M%B#r F-"%"c-%, R%t-#/ #+ KAMCO: C#/t C#')et-t-0e"e// -/ V-t%,
Tables to M respectively show the ma*or cost ratios, inventory management ratios, and profitability ratios of
%A&'(. t may be noted that all cost ratios are showing an increasing trend which is not advisable. The only
e!ception is @elling K Aistribution "@KA# e!penses to @ales ratio, which is very much under control and is
gradually coming down also. Iut this cost element is relatively small and hence less significant compared to
others "Table K 9igure #.

9inancia
l :ear
@taff 'osts
to @ales
&aterials 'onsumed
to @ales Datio
@KA C!penses
to @ales Datio
'onversion
'ost Datio
Total 'osts to
Total ncome
9:
+,,+ -+.+6
;0.7+ <.75 -8.;0 6<.+7
9:
+,,0 --.8-
7<.;- ;.<7 -6.<- 6;.-8
9:
+,,8 -8.+7
75.67 <.8< ++.55 65.8,
9:
+,,7 -;.,0
;0.68 -.+; +0.-< 5,.60
9:
+,,; -;.6<
;5.86 -.88 +,.66 5,.;+
9:
+,,<
-7.68 ;+.80 -.0, -5.;; 5,.-<
T%;,e III: M%B#r C#/t R%t-#/ #+ KAMCO*
F@ourceE 'omputed from &nnual 0eports of %A&'(, 9: +,,+ to +,,<.G
9inancial :ear nv. TN( D-&tl. nv. TN( W2 nv. TN( 9$ nv TN(
9: +,,+ 7.-5 ;.0; -7.7; -0.07
9: +,,0 7.-0 ;.58 -;.0< ,5.0<
9: +,,8 8.+- ;.+7 -0.<, ,<.7;
9: +,,7 8.80 ;.80 -;.7- ,6.;8
9: +,,; 8.,- ;.7; -6.00 ,6.,,
9: +,,< 8.05 ;.-6 -<.8, ,6.<8
T%;,e IV: M%B#r I"0e"t#r1 Tur"#0er R%t-#/ #+ KAMCO*
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F-&ure I : Tre". #+ M%B#r C#/t R%t-#/ #+ KAMCO*
F-&ure II : Tre". #+ I"0e"t#r1 Tur"#0er R%t-#/ #+ KAMCO*
Trend of Major Cost Ratios
Staff Costs to
Sales
Materials
Consumed to
Sales Ratio
S&D Expenses
to Sales Ratio
Conversion Cost
Ratio
Total Costs to
Total Income
y = 0.842x + 86.121
y = 0!"#"x $ #!%"%
y = 0!0!"x $ &'()%
y = &0)"*x $ &0(#&
y = +&#%&&x $ !''0"
0
20
40
60
80
100
FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007
Trend of Major Inventory Rato!
Inventory T"# Rato
Ra$ Matera%
Inventory T"# Rato
&I' Inventory T"#
Rato
F( Inventory T"#
Rato
y = 0.5111x + 14.523
y = )0.7451x + 11.885
y = )0.0531x + 6.63*3
y = )0.204x + 5.274
0
4
8
12
16
20
FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007
n the case of inventory ratios, all ratios are moving downward, which is not advisable, the only e!ception being
W2 inventory turnover ratios. n fact, an increasing trend shows effective inventory management and vice
versa. Thus, like cost ratios, inventory turnover ratios also show an unfavorable trend "Table MK 9igure #.
"n 2ercentages#
9inancial :ear =et 2rofit Datio (per. 2rofit Datio C2@ D( (p. 2rofit to 'ost
9: +,,+ 5.5; -+.58 8.-; -8.<8 -8.;,
9: +,,0 5.00 -0.<7 8.+8 -0.0- -;.,6
9: +,,8 <.7- -,.;6 0.-< 5.-8 --.68
9: +,,7 7.65 5.-7 +.5, <.<6 -,.,6
9: +,,; ;.70 -,.,; 0.+8 6.,; -,.07
9: +,,< ;.,0 5.;5 0.77 6.-6 -,.5,
T%;,e V: M%B#r Pr#+-t%;-,-t1 R%t-#/ #+ KAMCO*
Trend of 'rofta+%ty Rato!
,et 'rof. Rato -./
#0. 'roft Rato -./
E,S -Rs.
R#I -./
#0. 'roft to Tota%
1o!t -./
y = )1.07x + 16.053
y = )0.8243x + 13.*3
y = )1.426x + 15.1*3
y = )0.8477x + 10.50*
y = )0.1806x + 4.1753
2.5
7.5
12.5
17.5
FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007
F-&ure III : Tre". #+ M%B#r Pr#+-t%;-,-t1 R%t-#/ #+ KAMCO*
All profitability ratios show a clearly declining trend "Table M, 9igure #, thus suggesting that %A&'( has to
improve its profitability. Thus, profitability ratios also show an adverse trend> similar to costs and inventory
ratios as already discussed.
IV* KAMCO IN THE INDUSTRY: A BENCHMARKING ANALYSIS
Agricultural machinery and equipment have revolutionized the agricultural industry worldwide. n ndia, there
has been reasonable growth in the sales turnover of the agro-machinery manufacturing companies. Though there
are more than 7, companies, e!cept for the largest 8 to 7 companies others have very small market shares
"Table M#. %A&'( is benchmarked with M@T ) the competitor firm and also the market leader at present.
=ame of the company 9: ,+ 9: ,0 9: ,8 9: ,7 9: ,; 9: ,< Averag
e
M@T Tillers Tractors 1td. ,5.87 -,.<, -7.0< -0.86 -0.6- -;.,+ -0.-8
Tractors K 9arm Cquipments
1td. "TA9C#
,8.+< ,8.8+ ,;.<- -+.7+ -;.,, -0.<; ,5.;-
%A&'( -8.-7 -8.67 -0.0- -0.;0 -+.+, --.+6 -0.+8
Aspee Agro &achinery 'orp. ,+.;8 =A ,0.07 ,8.,- ,0.;; ,0.05 ,+.68
=avayug %rishi @adhan 2vt. 1td. ,+.+0 ,-.67 ,-.6- ,+.6; ,0.70 ,0.+< ,+.75
T%;,e VI: M%rCet S!%re/ #+ t!e L%r&e/t A&r#$M%c!-"er1 M%"u+%ctur-"& C#')%"-e/
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F@ourceE 'ompiled from '&C Aatabase, Industry1 'arket "ize 2 "hares, 3Agricultural
&achinery/, April +,,6, pp. +<6-+<5.G
Trend of Mar2et 34are5 67M1# 8! 83T
y = )0.628x + 15.435 -67M1#/
y = 1.1511x + *.10*3 -83T/
*
12
15
18
FY2002 FY2003 FY2004 FY2005 FY2006 FY2007

F-&ure IV: M%rCet S!%re/ #+ KAMCO V/* VST FY 56652566=(
t is noted that the market share of %A&'( was the highest till 9: +,,0 and it was the leader. Iut since 9:
+,,8 M@T is leading in performance. While the market share of %A&'( is constantly on the decline since 9:
+,,7, that of M@T is on the rise. "Table M, 9igure M#.
'ompany 9: +,,+ 9: +,,0 9: +,,8 9: +,,7 9: +,,; 9: +,,< Average
M@T --.;; -+.66 -<.-8 -8.<, -;.;- +0.55 -0.58
%A&'( -8.<8 -0.0- 5.-8 <.<6 6.,; 6.-6 -,.+,
F@ourceE 'omputed from the database of the companies available in ('I+ !rowess, '&C.G
T%;,e VII: ROI #+ KAMCO V/* VST FY 5668 2 566=(
y = 3.*143x + 0.2433 -83T/
y = )1.426x + 15.1*3 -67M1#/
)5
5
15
25
FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007
Trend of R#I5 67M1# 8!. 83T

9igure ME D( of %A&'( Ms. M@T "9: +,,+ ) +,,<#
$rowth Date "?# 9: +,,+ 9: +,,0 9: +,,8 9: +,,7 9: +,,; 9: +,,< Average
%A&'( -,.58 ,6.6< -,<.-5 -;.8+ ,.66 -0.5< ,7.08
M@T -+;.6; -<.0< 8;.7- -,.7< -8.8; +7.06 -+.<+
F@ourceE 'omputed from Annual Deports of %A&'( "9: +,,-)+,,<#, '&C AatabaseG
T%;,e VIII: S%,e/ Gr#9t! #+ KAMCO V/* VST FY 5668 2 566=(
Trend of 3a%e! (ro$t45 67M1# 8!. 83T
y = 5.8683x ) 7.824 -83T/
y = 2.11*7x ) 2.084 -67M1#/
)30
0
30
60
FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007

F-&ure VI: S%,e/ Gr#9t! #+ KAMCO V/* VST FY 5668 2 566=(
As in the case of market share, in respect of Deturn on nvestment "D(# also there is a declining trend for
%A&'( and an improving trend for M@T. "Table M, 9igure M#. @imilarly, in the case of sales growth also
M@T is ahead of %A&'(. Iesides, M@T is growing much faster than %A&'( over the years. "Table M,
9igure M#.
V* SIGNIFICANCE OF COSTS: AN ECONOMETRIC ANALYSIS
C$D PRODUCTION FUNCTION(
n this section, an attempt is made to identify the factors that significantly influence the productivity of %A&'(
using 'obb-Aouglas "'A# 2roduction 9unction. The term 32roduction 9unction4 denotes an empirical
relationship between specified outputs and inputs, and such a function can be derived for a single firm, an
industry or even an entire nation "economy#. The simplest form of 'A 2roduction 9unction isE

D E L
%
F K
;
Here, B, 1 and % respectively stand for output, labour and capital. Here, a and b "e!ponents# have to be
estimated from empirical data. 9or a typical manufacturing company like %A&'(, the production function at
any point of time t for an output B may be e!pressed as followsE
D E Ft G Ktt(, Ltt(, Mtt( H
where, %"t# is the capital employed for which net worth of the company is used as a pro!y, 1"t# is the labour for
which the @taff costs "Cmployee costs# has been taken as the pro!y, and &"t# is the material costs. The relevant
data applicable to %A&'( are given in Table O.
"Ds lakhs#
9inancial :ear @ales 'apital 1abour &aterial
9: +,,- ;6,5.,, 050-.85 <58.,, 8-5<.,,
9: +,,+ ;<87.,, 8778.5+ 6+6.,, 8+67.,,
9: +,,0 <080.,, 7-88.-5 606.,, 8+,8.,,
9: +,,8 ;6-7.,, 7;,-.;< 5<-.,, 8,<5.,,
9: +,,7 <508.,, ;,-8.-8 -+<+.,, 7,;7.,,
9: +,,; 6,,8.,, ;86-.8; -07,.,, 77;-.,,
9: +,,< 5-++.,, ;55<.;< -887.,, 7;57.,,
"@ourceE &nnual 0eports of $&'() for the period 9: +,,- to 9: +,,<#.
T%;,e I?: M%B#r I")ut2Out)ut V%r-%;,e/ #+ KAMCO FY 5668 2 566=(
=ow, after running Jni-variate Degression analysis using @2@@ package "Mersion -0# with sales as the
dependent variable and capital, labour and material as the independent variables, the output obtained is as
follows "Tables O and O#.
T%;,e ?: Re&re//-#" Out)ut #+ KAMCO: C#rre,%t-#"/
2articulars @ales 'apital 1abour &aterial
@ales -
'apital ,.6<, -
1abour ,.5,7 ,.506 -
&aterial ,.5-6 ,.68; ,.577 -

2articulars 'o-efficients t)Malues @ig. D D
+
Ad*. D
+
A-WP 'o-efficient
'apital ,.0+6 ,.56, ,.06+ ,.5-6 ,.68+ ,.6-- +.7+;
1abour ,.0+7 ,.7,0 ,.;8+
&aterial -.-70 7.-;5Q ,.,,8Q
"Q denotes significance at 7? level of significance.# "P Aurbin-Watson 'o-efficient#
T%;,e ?I: Re&re//-#" Out)ut #+ KAMCO: Ke1 P%r%'eter/
t is observed that material component alone is statistically significant in determining the profitability in respect
of %A&'(. 9urther, it is noted that the share of labour is pretty low, which in turn suggests that competitive
market assumption may not be true in this case. "n advanced countries where markets are close to perfect
competition, the share of labour is nearly two-thirds#. n view of the foregoing, the following two broad findings
are apparentE
4irstly, %A&'(4s profitability is significantly affected by cost pressures "Table K 9igure #. (f the
various costs, material cost is the most important one ) the one which significantly affects productivity of
%A&'(. n short, for better performance and sustained growth, the company has to improve its
competitiveness through cost management ) particularly management of material costs. %A&'( being
primarily into further processing and assembly of bought-out parts to produce final products, inventory
management should be one of the areas wherein focused attention is required. t may be noted that there has
been an unfavourable "declining# trend for inventory turnover ratios "Table M K 9igure #.
"econdly, because of the falling market share "Table M K 9igure M# and slow pace of sales
growth "Table M K 9igure M#, diversification of product portfolio may be essential for increasing sales and
hence improving market share. Horizontal diversification, like from Tillers at present to Tractors, @prayers etc.
also in the future, appears to be meaningful. 'ompetitors have already got diversified portfolio "eg. M@T,
TA9C#. %A&'( has already lost its leader position. Cven the current position "second# may be lost unless
suitable diversification strategies as above are taken at the earliest "Table M#.
VI* COMPETITIVENESS THROUGH COST MANAGEMENT: SOME STRATEGIES FOR
KAMCO
n view of "i# falling market share "Table M K 9igure M#, "ii# falling profitability "Table M K 9igure #, and
also "iii# relatively slow sales growth "Table M K 9igure M# the strategies that %A&'( may adopt for
enhancing its competitiveness in the industry and hence enabling its sustained growth, could be two broad grand
strategies viz. "i# @trategies for enhanced cost competitiveness, and "ii# Aiversification strategies for enhancing
market share and sales revenue. (f these, strategies for cost competitiveness alone are taken up here in detail,
from the point of view of the ob*ectives of the paper.
'ost management strategies for enhanced competitiveness of %A&'( can be of two broad types viz. "i# short-
term strategies, and "ii# long-term strategies.
3*8* S!#rt$Ter' Str%te&-e/
@hort-term strategies may be implemented without ma*or changes in the present systems and procedures. @ome
of such meaningful strategies are given in Table O. t may be noted that these cost saving strategies "Table
O# alone can bring about cost savings of 0.--8? which is quite reasonable. These strategies should gradually,
give way to the broader long-term strategies, wherever applicable "eg. Annual order should give way to RT#.
@uch long-term strategies that %A&'( may adopt are dealt in the ne!t section ";.+# of this paper.
T%;,e ?II: C#/t S%0-"&/ u".er V%r-#u/ E,e'e"t/ #+ C#t/ #+ KAMCO FY 566= B%/-/(*
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'ost Clement Iasis of 'ontrol N 2er Jnit cost savings @avings "? of total costs#
Clectricity
charges
Avoiding off-peak hour consumption by suitable re-
arrangement of @hifts. At present, two shifts "< A& to 0
2& K < 2& to -- 2&# are there. The second shift is
sought to be re-arranged as -- A& to ,< 2& to avoid
peak time consumption "; 2& to -, 2&# to obtain cost
savings, Ds.+ lakhs Nmonth "average#
Ds.+,,,,,,,-,,
"for -+ &onths#
S Ds.+8,,,,,,,-,, N year
nventory costs "i# @elf-nspectionE (rdering full-bo!es and
ensuring the total no. of bo!es, Ds. +,,,,,-,, N
p.m."Av. salary and inspecting (fficial#
"ii# $iving the empty containers back. (ne container
costs Ds.77,-,,. There are 0,, suppliers and +, times.
(nly -7, suppliers are providing this facility.
F-7, O +, O 77,SDs.-;,7,,,,,-,, N monthG
"Ds.+,,,,,-,, T Ds.-;,7,,,,,#
for -+ &onths
S Ds. +,,,,8,,,,,-,,
2ostal 'harges @peed 2ost N Degistered 2ost deliveries are replaced with
regular 'ourier service agents.
Ds. 7,-,, "average# is reduced to Ds.-,-,,. Ds.8,
savings for -,, consignments of 0,0 days. "Ds.8, O -,,
O 0,0#S -+-+,,,-,,Nyear S Ds.-+,-+,,,,-,,
2urchase
(rders
"Annual#
Deducing ordering costs by Annual orders. Totally 0,,
suppliers and 8 orders per month. 2er order -7 minutes
out of <.7 hours for a worker with Ds.7,, salary Nmonth.
Thus,
"7,,N<.7# O ,.+7 O 8 O 0,,SDs.+,,,,,Nmonth
Ds.+,,,,,-,,
for -- months
S Ds.+,+,,,,,-,,
Iank 'harges Airect transfer to the accounts of clients -,,
transactions N day on an average. 'oncessional charges
"7,?# for banking services. Ds.0, per AA and bank
charges Ds.8,+5,706 "2K1#.
F"-,, O Ds.0, O 0,0# T Ds.8+5706-,,G N year
"Ds.5,,5,,,,-,, T Ds.8,+5,706#
S Ds. -0,06,706-,,
Carly payment
Aiscount
,0? discount for early payment. -, suppliers alone are
giving this discount. Thus per year,
"7;,58,67,-58-,,N0,#O ,.,0S Ds.7,;5,867-,, S Ds. 7,;5,867-,,
'ontract
1abour
Wherever possible new recruitments are made on
temporary basis for consolidated pay. (n an average 0,
such personsNyear at Ds.7,,,N month, as against
Ds.+,,,,,Nmonth for regular hands. 0, O
Ds.-7,,,,SDs.8,7,,,,,-,, N year S Ds. 8,7,,,,,-,,
Total 'ost @avings "Ds# per year. "A# Ds. +,;+,0,,,+0-,,
Total 'osts for the year "I# Ds. 68,+8,-7,<;6-,,
'ost @avings as a percentage of Total cost "A N I# O -,, ,0.--8 ?
F@ourceE 'omputed by the Author from the 'ostN9inancial statements and records of %A&'(G
3*5* L#"&$Ter' Br#%.( Str%te&-e/
J,T -J$"&.in.Tim/ P!o*$c&ion Sy"&mE 9or such an endeavour to be implemented successfully,
%A&'( should ensure the following pre-requisites before implementation "these being observed to be critical
success factors# "&ahadevan, -55<#
-7
E "i# supplier development, "ii# employee involvement, and "iii# top
management commitment. Iesides, a meticulous strategic planning may be required prior to any ma*or RT
initiative as above, for success "&ahadevan, -55<#
-;
. Cffective RT implementation can bring about such benefits
as "in the descending order of importance# "i# increased productivity, "ii# increased profit margin, "iii# improved
competitive position, "iv# quality improvement, and "v# reduction in inventory. "'handra, -556#
-<
. Typically,
three years4 lead time is required for RT implementation
-6
.
Ta!'& co"&in' -TC/ %o! 0nhanc* Comp&i&i(n""E Wherever the total cost of internal manufacture
of the parts is higher than market price of these parts, based on a T' approach tighter control of overhead costs
could bring down the processing costs substantially so that the total costs "material cost and overhead# is below
the market price. Accordingly, the company can maintain cost competitiveness with the market in internal
production. %A&'(4s previous e!perience has shown that overheads are controllable to the e!tent of about
0,?, mostly through savings in overheads like indirect labour charges, indirect supervision charges etc. 'ertain
overheads like fuel consumables, however, are not amenable for cost control. Thus, wherever feasible T' is
quite advisable.
O$&"o$!cin'E Wherever, target costing as mentioned in the above paragraph is not a feasible
proposition because of the nature of the overhead costs, then it would be better to outsource such components or
parts from the open market. However, in case of outsourcing, there should be provision for re-deploying the
surplus labour if any. This in turn requires advance strategic planning.
O&h! Comp1mn&a!y S&!a&'i"# These are quite desirable along with strategies like RT and include,
inter alia, "i# 1ean 2roduction system, "ii# $anban "continual improvement#, "iii# T2@ "Toyota 2roduction
@ystem# approach, "iv# @i! @igma, "v# TB& etc. etc.
CONCLUDING REMARKS:
'oncluding the paper, it may be stated that because of the cut-throat competition in the industry in the wake
globalization pressures, and also the recessionary situation that is persisting in the economy since 9: +,,;,
meticulously planned and well articulated cost management strategies have become an imperative for survival
and growth for any manufacturing company. 9or a 2@J "$ovt. of %erala# like %A&'( in particular,
competition from private players like M@T and TA9C will increasingly pose threat in the days to come. Iut, in
spite of having all its handicaps of being a 2@J, %A&'( has got all the requisite potentialities to come up and
e!cel. This is evident from the formidable resilience of the company over the years, profit making track record
and reasonable sales growth. %A&'( has got an e!cellent cost management department that facilitates prudent
business decisions on the above lines ) probably one that is helping this profit-making 2@J to tide over the hard
times without much of problems.
REFERENCES:
ISSN: 6<=> 2 3=8?@ NOV 86 TO OCT 88 @ V#,u'e 8, I//ue 5 P%&e 5I
-
Wignara*a, $aneshan., 'ompetitiveness @trategy in Aeveloping 'ountriesE A &anual for 2olicy
Analysis, Doutledge, 1ondon, 9irst Cd., +,,-. p. ;.
+
bid., p.<.
0
Iased on J% AT "-556# and J=A( "+,,+#, cited in 9= "-# above. pp.8-7.
8
Ahluwalia, . R."-567#, ndustrial $rowth in ndiaE @tagnation @ince the &id-@i!ties, (!ford
Jniversity 2ress.
7
= =agara*, D., .$rowth in &anufacturing (utput since -56,E @ome 2reliminary 9indings/,
Aspects of ndia4s Cconomic $rowth and Deforms, Academic 9oundation, =ew Aelhi, +,,;. pp. --0-
-+8.
;
yer, A, %andaswami, %., et al., .&anufacturing4s =ew AawnE 'an ndia (vercome the
'hallenges to become a $lobal 2owerhouseU/, ndian &anagement, All ndia &anagement
Association, =ew Aelhi, Mol.8;, ssue <, Ruly +,,<, pp.-8-0;.
<
=@& "=ational &anufacturing @trategy#, =&'', $ovt. of ndia, &arch +,,;. p.--.
6
=@& "=ational @trategy for &anufacturing#, =&'', $ovt. of ndia, p.+.
5
bid. p.8
-,
=akagawa, Hiroshi., &anaging Airector, Toyota %irloskar &otor ) the *oint venture between
the Rapanese car maker Toyota and the ndian company %irloskar &otors, .ndia needs to improve cost
competitiveness/, The Hindu Iusiness 1ine, %ochi Cd. dated +,th Ruly +,,6.
--
.'ompetitiveness through 1ocalization, &J14s Way/, The Hindu, %ochi Cd., dt. +<th April +,,6.
-+
=@& "=ational @trategy for &anufacturing#, =&'', $ovt. of ndia, p.-<.
-0
$oden, Iishwanath K %ato, Atsushi., mport 2enetration and 2rice-'ost &argins in ndian
manufacturing ndustries, Working 2aper E CN+<-N+,,;, nstitute of Cconomic $rowth, Aelhi.
-7 &ahadevan, I, .Are ndian 'ompanies Deady for Rust-n-Time/U, &anagement Deview, Ruly)
@ept.-55<, pp.67-5+.
-; bid.
-< 'handra, @., .Rustification of Rust-in-time manufacturing systems for ndian industries/, ntegrated
&anufacturing @ystems, Mol. 5, =o.7, -556, pp. 0-8-0+8. "Available at www.emeraldinsight.com#.
-6 &ahadevab, I., -55<. "As given in -7 above#.

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