Dr. D. Mukhopadhyay
Make in India is the flagship initiative of the Government of India under the able leadership of Mr. Narendra Modi, Prime Minister of India. This programme was officially launched on 25th September, 2014. The essence of ‘Make in India’ is an address to the industrialists at global level for setting up their manufacturing units in India for production of goods and services and sell them in both national as well as international markets. This initiative aims at capacity building and is of significant relevance in the age of contemporary macro economy management scenario. CMA is an effective management technique used in analyzing past, current and future cost data in order to provide the logical bases for managerial decision making under various different situations. It is an acceptable truth that India is lagging behind other countries in foreign markets because of her incapability to provide qualitative products at competitive prices since she suffers from competitive cost disadvantage.
‘Make in India’ is undoubtedly supposed to be the growth engine for the Indian economy since it has high potential for stimulating domestic employment, productivity and profitability of corporate India and economic growth and development of the country. The fundamental preamble of the ‘Make in India’ initiative is to make India destination of manufacturing sector both nationally and internationally and success of this project invariably depends on how we are able to manage cost and attain global quality standard for the products and services produced in India. So far many countries including Japan and Russia have responded to the mission of the ‘Make in India’ programme. It may be asserted that unless we are able to manage cost and conform to the specific quality standards of the products in order to deliver standard intrinsic value to the discerning customers, we cannot sustain the shock of severe competition. Sustainability and growth is meant for those organizations that are capable of enhancing customers’ satisfaction and offer competitive value to the customers and as a consequence of which, they can increase their market share. The industries need to manage cost efficiently and enhance internal efficiency and quality of the products and services in order to make ‘Make in India’ programme successful. The principal focus has to be made towards management of competitive economic environment where greater market access shall be available to those who manage cost better and here lies the role of the CMAs. Effective cost management is the key to transforming domestic industries into globally efficient supply hub for the products and services. The industries need to practice for optimizing quality for a given cost or minimize cost for a given quality. The CMA techniques include Total Quality Management (TQM), Activity Based Costing(ABC), Target Costing, Balanced Scorecard, Just-in-Time (JIT), Value Engineering (VE), Business-Process Re-engineering and Strategic Cost Management Techniques besides traditional Budgetary Control, Marginal Costing and Standard Costing which are essentially able to derive success for an organization remaining engaged in production and distribution of want removing goods and services. Strategic Management Accounting (SMA) is a powerful technique besides traditional management accounting tools and techniques which are immensely used by the CMAs and the same can play a significant role in the market driven by competition. It is quite difficult for the industries to sustain and grow unless the costs are correctly accounted for, controlled and reduced through elimination of wastages and losses that take place during manufacturing process and in the supply chain. During the phase of economic depression, cost and management accounting information help the management to explore the areas where maximum economy can be achieved, wastages can be eliminated and efficiency could be increased. More wastage leads to high cost, high cost leads to low profitability and low profitability culminates into low financial performance and therefore high cost is the genesis of low performance of the products or business undertaking as whole. A CMA is a member of the strategic management team and acts as an adviser to the management. The cost structure of a particular product comprises of raw materials, labour cost and overheads.
Raw materials and variable overheads vary with the variation of volume of production and labor in true sense is nothing but fixed element along with fixed overhead. Enhancement in capacity and elimination of wastage lead to reduction of per unit fixed cost and variable cost per unit remain fixed under a given situation. It is difficult for ‘Make in India’ programme to succeed unless it attaches significant importance and attention to cost management. It is learnt that the Institute of Cost Accountants of India(ICAI), the apex Professional Body of the Management Accountants has already extended her support to the Government of India for making ‘Make in India’ successful. It has been mentioned elsewhere in the write up that TQM should be given utmost importance under ‘Make in India ‘ era. Quality costs comprise of prevention, appraisal, internal failure and external failure costs. Quality training is the main component of prevention cost, appraisal cost comprises of product inspection and materials inspection costs, internal failure cost is embodiment of scrap and rework cost and finally external failure cost is product warranty and after sales service cost. Gulf between selling price per unit and cost per unit is profit per unit and profit is the oxygen for any business and the same is applicable to ‘Make in India’ too. Cost needs to be measured and reported well in time so that management can exercise appropriate action and CMAs are the perfect choice of the management for the stated purpose. Quality cost management is practiced by the CMAs commitment, developing cost culture, enabling continuous improvement in the process, accruing co-operation, customer focus and control.
‘Make in India’ should keep in view that performance measurement and quality improvement are the basic objectives for sustainability of a business. The life cycle of a product consists of five phases and they are introduction, growth, maturity, saturation and decline and it is an imperative to account for costs of each phase and report the same to the management for taking correct measures for ensuring sustainability and survival of the organization in general and the concerned product in particular.’ Make in India’ for its success must take into consideration that product cost, revenue and profit patterns trend follow predictable courses through the product life cycle. Profit per unit varies as products move through their life cycles. Each phase of the product life cycle poses different threats and opportunities that give rise to different strategic actions. Products require different functional emphasis in each phase. For instance, research and development costs incur during development phase and cost control is a must during decline stage. The management of an organization is required to develop cost and quality culture and effect of cost and quality culture is objectively measured by the CMAs. In management, there is a widely acceptable maxim that it cannot control anything which is not measured or measurable and when the question of measurement comes into picture, the relevance of CMAs assumes considerably higher degree of importance. Effectiveness of people, process, identification of problem and adequate preparation for introducing quality culture are the essence of quality management. Quality has a cost too and cause-effect phenomenon with reference to ‘Make in India’ needs to be addressed properly. ‘Make in India’ if the issues raised in the write up takes into account, it would bear the expected fruits in the forth coming days.
Unless we produce something, we cannot sell and when we cannot sell, we cannot earn. ‘Make in India’ is guiding force for the Indian manufacturing sector in particular and the country in general. For overall success of a business undertaking, it needs involvement and contribution of production manager, marketing manager, human resource manager, product designers in the value chain and management accountant measures their contribution and evaluates performance objectively and ultimately ascertains overall success of the organization in terms of profitability. Sales are the only window through which revenue enters into the organization and rest are all cost. Cost is the expression of sacrifice whereas sales are the rewards and cost needs to be matched against revenue for ascertaining the ultimate financial performance of the firms. Thus, ‘Make in India” is a broad concept rooming the functional, operational and strategic concepts and theory of management. This has to view cost containment as a function of the cost drivers regulating each value activity. An activity that does not create any value should be abandoned. It needs to study the linkage with suppliers, customers and linkage with the manufacturing process in order to optimize cost of production. Cost needs to be managed at every stage of manufacturing. Target costing is a handy tool to manage cost in such a manner so that target profit is earned by the firms at the end of the game. It has to identify cost drivers at the individual activity level and ensure cost advantage by controlling these drivers better than the competitors. Finally cost control and cost reduction in possible manner is to be kept in view. It has to achieve savings in cost of production, distribution, selling and administration.
Variance Analysis is the fundamental spirit of cost control. Cost control implies guidance and regulation by managerial action and for this purpose, managers are provided with yardstick in the expression of standards or budgets with which the actual costs and performances are compared in order to ascertain the degree of achievement. The whole process needs to be monitored for achieving competitive cost advantage. A firm cannot succeed unless cost is monitored and managed. Cost leadership is the common denominator for measuring success under competitive business environment and ‘Make in India’ in order to become successful has to give adequate attention to eliminate cost disadvantage. Hope, the decision makers shall keep the importance of cost management in view while dealing with performance management of the products, customers, departments or any segment of business under the canvas of ‘Make in India’.
(The author is Professor of Management at School of Business, Faculty of Management, Shri Mata Vaishno Devi University, Katra, Jammu & Kashmir.)
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