Prof. D. Mukhopadhyay
Manufacturing of goods and generating services at sustainable cost and selling them at competitive prices both in domestic and international markets cause economic development and this hypothesis has been tested when the Industrial Revolution in 18th Century took off. The manufacturers have no control over price in buyers’ market but appropriate strategy for managing cost of production and distribution enables manufacturing sustainability. Indian goods are devoid of sustaining intense competition at global market. Indian consumers incline to buying foreign goods at affordable prices. Competitive price covers the cost and manufacturing profit and manufacturing profit ensures manufacturing sustainability. It is worth referring that products’ sustainability in competitive market is the function of cost and quality. Quality again is subject to quality cost implications which is the function of appraisal cost, prevention cost, internal failure and external failure of cost incidence essentially borne by the concerned products. To be specific, cost competitiveness is the function of cost management for which appropriate strategy depending on product life cycle’s stage needs to be formulated. Traditionally , product life cycle is embodiment of introduction, growth, maturity and stagnation and decline stages. Cost management is a scientific process being the brain child of F. W. Taylor (1841-1915), Father of Scientific Management and it emerged to be a super specialization discipline innovated, with creative passion, No industrialized Nation could sustain without having cost management strategies which not only forecast cost of production and distribution but also it guides strategic management team in navigating the products in appropriate markets, enabling them sustain the burn of competition by assuring planned profit and profitability. No business can sustain without profit, the compensation for business risks assumed by the entrepreneurs irrespective of its size and that is why Milton Friedman, Nobel Laureate in Economic Sciences (1976) opined that business of business is to earn profit . One more variable besides cost and quality is the ‘time’, these variables are the critical success factors of the firms in the competitive markets. In order to win the battle of competition, a management model coined as Strategic Cost Management (SCM) approach, for manufacturing of capital goods, consumable goods and services as well as the substitute of traditional volume based cost management system is in place and Value Chain Analysis contributed by Michael E. Porter, a Harvard University Professor of Strategic Management. SCM is the cause based strategy instead of effect based costing system which was unable to assign cost to the cost objects based on the resource consumption since the concept cost driver was not developed prior to emergence of SCM. As a result , profitable products often had to bear the costs of sustainable products sequel of which a misleading situation used to arise. It is an empirically proved hypothesis that Indian manufacturing sector is incapable of sustaining the burn of cost competitiveness in the international market and it is one of the prominent reasons why India is economically less developed as an industrialized Nation. Government of India adopted ‘Make In India’ Strategy for self reliance achieving through time bound economic growth . India targets to emerge as one of the most economically advanced Nations in the world by 2047 when she would celebrate her Centenary of self rule .
What India likes is the quality of living of people, developed infrastructure , technology driven rapid transport system, quality health service, world standard education, advanced space research, most advanced defence and strategic surveillance system etc are aspirations of the Nation. India is a self respected Nation and every citizen of the country likes to witness that India is second to none by 2047. In order to emerge as an industrially developed Nation and the reservoir of economic power, none should overlook the importance of SCM as cost is strategic determinant of socioeconomic development. Indian manufacturers must take assistance of SCM in order to achieve target to become a self reliant and self dependent Nation which was taken into cognizance in letter and spirit by the Indian leadership and as a sequel.
SCM is a strategic management model for enabling cost reduction and making products cost competitive which in turn makes manufacturing sustainable by expanding the markets of the products internationally. Therefore manufacturing sustainability is the function of strategic cost management . It is worth mentioning that industrialization has been synonymous with socioeconomic development as most of the high-income countries achieved that level of economic prosperity through manufacturing competitive export oriented products whose key driver of success is cost management strategy evidenced by success of China as one of the leading exporters of good and services to the African, Sub-Saharan, South American including US and Indian markets.
India is observed to be averse to adoption of any competitive advantage generating methodology except minimum statutory compliance and manipulating sales and profit by remaining passive be to use cost management strategies . Industrialists and enterprises mostly remain indifferent to use cost information for decision making instead prefer the ‘Thumb Rule’ while assessing performance of products and services, segments, customers, regions , markets, workforce, raw materials, inventory management, measuring cost of wastage and abnormal losses since these are beyond the jurisdiction of statutory compliance. Cost behavior prediction is an important issue for cost and management accounting system of any manufacturing enterprise as it affects decision-making processes. Cost and Management Accountants (CMAs) are value measuring experts who are exclusively exposed to the rigorous education curricula and training in discipline of cost and management accountancy or simply management accountancy and Management Accountancy has emerged to be one of most elite professions across the globe whose genesis is cost and works accountancy of 19th Century. Role played by a CMA is high significance since inception of product design , development to sales , after sales and more appropriate to say, through out entire life cycle of concerned products evaluating and reporting products’ profitability and competitive sustainability to the strategic management . Planning and control are important tools of management control system.
Costs show different behaviors depending on the level of activities of an enterprise. In traditional cost model it is often assumed that administration , selling and distribution costs vary according to the volume of activity level but in reality , these costs behave asymmetrically . An enterprise needs to take into consideration the cost behavioral relationship between cost with revenue. The rate of effect of change in revenue on the rate of change in costs while forecasting operational activities and predicting the behaviour of future costs related to such activity levels. An enterprise is to value and in turn an increase in equity is of vital importance while assessing manufacturing sustainability. A profit seeking firm tries to maximize economic benefit from consuming less resource and using optimization technique for cost reduction besides cost control which is not possible to achieve by management generalists but by someone who possesses complete expertise and specialized knowledge to examine how costs behave and the factors influencing the behavior of costs. It is just like the role of a a qualified medical practitioner can not substituted by a para-medical staff in diagnosing what causes fever to a reported patient. Increasing intense competition in domestic and international markets make it an unavoidable management exercise for understanding the nitty-gritty of cost structure of concerned product and services and be aware of consequences of the pattern of change of cost behaviour. Indian industrial sector has been observed to have suffering from strategic cost management phobia and time and again they expressed that they should be outside the purview of cost efficiency and cost effectiveness practices and hence outside the purview of cost audit. Cost audit is not a kind of traditional audit instead a tool for efficiency and productivity measurement and diagnostic technique for identifying the factors contributing to insignificant value to the organization and unprofitable products or services that need to be eliminated and a substitute based on cost-benefit any analysis may be an alternative. Cost audit is in existence for more than fifty years but Indian industry are averse to take the benefit of this performance management technique essentially being the part of SCM. SCM is essential for survival, development and growth of business enterprises at micro level and socioeconomic sustainability development at macro level. Therefore, policy formulators , decision makers , industry promoters and corporate captains, bureaucrats, research organizations, NGOs and welfare organizations are recommended to make intensive use of SCM for securing sustainability and enhancing competitiveness of the products and services they manufacture and deal in. Stock is the graveyard of business and there no system inventory valuation and the organization take the shelter of loopholes in manipulating profit and statutory financial audits reports what management furnishes to them. It is not possible to value the closing inventory of without having a costing system. It is perhaps next to impossible to become a self reliant industrialized Nation by 2047 if manufacturing sector in particular and centerpieces in general imagine to enjoy competitive advantage without SCM. Therefore , Government of India should take into active consideration the pivotal importance of cost and management accountancy profession and the role of CMAs in order to garner benefits of ‘Make in India’ strategy in making India a self reliant Nation by 2047.
(The author is an Independent Researcher and Practising Educationist)
Prof. D. Mukhopadhyay