Sunday, November 15, 2015

COST MANAGEMENT TURN AROUND A FORTUNE 500 COMPANY.

After a long time I am going to share another turnaround story of a Fortune 500 company which was taken over by an Indian company and through efficient cost management the company was turnaround from a loss making to strong profitable company. I couldn’t find any other topic to cover while writing my 392nd research article over the past 6 years. In the recent past the profession has beaten miserably from all angles it lost its sheen which it used to carry a decade ago. But it regained and kept its fight alive till date. One of the biggest boons this profession has passed to several industries is that it saved them from getting depleted from the global industrial landscape. Cost reduction is an unstoppable process of critical cost examination, analysis and challenge of standards. This case study is a very well known and it clearly reflects about the turn around it has witnessed currently. I am surprised that Indian industries are taking cost accountants and cost records as hindrance to the path of growth of their companies. I will not be getting into number games since the case study itself is open to anyone I just brought it in front of those who think that they are losing hope on the profession.

Coming back to the Fortune 500 Company, that company was making loss before going to be brought by an Indian giant.  The number of losses and the profit figures speaks a lot about the cost management tools being taken and adopted by the company to make the turn around. The company was draining around $12.6 billion a year before it went for sale. The company  focused on design, technology, innovation, efficient strategic cost management , improving the supply chain verticals and making them into profit centers using activity based costing and high quality standards where error were eliminated lead to the stupendous turnaround for the company. Through site by site measurement and reporting of performance the company .The growth of the company is supported by a disciplined financial plan involving tight cost controls and targeted investments. The cost savings aspect has been taken into every small inches of the organization. For example in order to reduce of electricity they have built solar energy based plants where electricity cost would be eliminated or rather reduced to negligible levels. The company changed its landscape of cost control and now its rolling very strongly towards its new innovative expansion and growth plans in its production facility.

 It improvised its Life cycle costing strategies and built a culture of data-sharing standard to improve car development within its product lifecycle management (PLM) system. Yes the industry to which the company belonged was Automobile Company. The growth of the company is supported by a disciplined financial plan involving tight cost controls and targeted investments. Efficient cost management has been the bible of the company. The common uses its cost management strategies efficiently and judiciously to drive long term profitability. Currently the company has taken The project, called Leap 4.5, will entail building more models on similar core skeletons, overhauling the carmaker's supply chains and slowing down or halting the recruitment process, although there are no plans for redundancies. Further through this innovative COST MANAGEMENT STRATEGY  the company plans for costs of meeting emissions standards, which will lead  to save cost to the tune  3 billion pound-a-year which will be used by the company for capital spending budget on research and development and building new plant. Hence its proves that efficient cost managements leads to efficient cost and investments allocation keeping the long term sustainability strategies of the company. Efficient sales strategies were mixed with investment strategies where cost management was strategically taken forward.

Well the company is Jaguar Land Rover (JLR) which have been taken over by the TATA in 2008 after suffering a decade of losses in 2008. Extensive analytics and market research have been adopted by the company to drive  target costing application in terms of its decision making. Data analytics helped the company to drive efficient pricing strategies for its methodologies for dynamically pricing its large range of parts and accessories in the face of growing competition from independent aftermarket suppliers. The company adopted life cycle costing and target costing as bible within its operational activities where it achieved  new generation of efficient vehicles, Efficient supply chain management and researching new types of natural fibers that could reduce the weight and life cycle impact of vehicle components compared to plastic.  Its cost management senses were so strong that it adopted the same theory in investment activities even for investing for raw material to new hybrid engines spare part purchase. Jaguar Land Rover’s recent product offensive is the result of significant investment by the manufacturer. In the last five years it has invested over £10 billion, while tripling its annual engineering spend in just six years. 

All these were implemented by TATA Motors. TATA motors need no introduction about its cost management strategies.  The most important part of Jagura land Rover is a key eye opener to the Indian industries that thinks and ignores that cost reports, rules and cost management audits of no use. If you don’t know how to use knowledge it doesn’t mean that it doesn’t have value. This sounds and fits well for Indian industrialist. 

The current competition increases the demand of better cost management strategies and adoption of cost accounting rules and regulations within the system. The cost audit reports were never focused towards government alone. Industries failed to adopt and read the report hence it became useless. We cost accounting and costing methods are going to be the key factors which will drive the investments and corporate profitability growth in the long term. Big data analytic helped Jagura to design its costing modules and derive stupendous growth. Then why the same cant be adopted by the Indian industries.


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