POST DEMONITIZATION …ADOPT TARGET COSTING TO SURVIVE

Demonetization has lead to a significant change in market dynamics particularly for the rural economy where cash based transaction is the king. Non-availability of cash and change in surplus cash holding might have impacted the demand demographics of the consumer. Costing Accountant and costing methods have been always beneficial for the socio-economic development and its carries a huge responsibility towards the society. Costing tools have made product accessible to the society at large. People have started dreaming of consuming products which they never dreamt. The historic case of Maruti being launched in India was a perfect example of adopting costing methods and tools which made people of India believe to have car of their own.  Cost Accounting profession, its rules and records have played a pivotal role in uplifting the consumer and social aspect of the society.   

Now Small and Medium Enterprise faces a huge challenge post demonetization to carry ahead of the consumption market. Target costing is best costing tool to be deployed for designing products pricing based on changed market structure.   Changing business climates and opportunities followed with uncertainty have compelled to adopt strategic cost management techniques and hence Target costing is one of the tools to be adopted and implemented to wither out the uncertainties.

Gone are the days of traditional pricing of products and also monopolistic market control. Technologies have already changed the demography of business and hence strategic cost management needs to come up. Today’s innovation and entrepreneurship plays pivotal role in Indian economic development hence cost control and strategic cost management is the essence of the time.

Post demonetization big corporate will be able to wither the pains of slow growth from rural economy but SME’s cannot afford to have the same. Doing Cost Management in SME (small & medium sized Enterprises) is different from big corporations, mainly because of resources. SME cannot use the same resource input in managing cost and hence these are often unmanaged.

The effect of not adopting target costing and following the traditional costing will be that buyers in rural economy may not be able to buy the products which used to be purchased by them pre demonetization era. This is a significant drawback for the economic growth.  In one side the consumers will starve for not getting products within their reach, on the other side manufacturers will suffer as consumption comes down. At the same time if an SME don’t adopt Target costing then he will lose out his market share to the ones who adopts the same in large organizations.

Target costing helps to adopt the market driven product design and pricing accordingly. Tools of operations management such as quality function deployment (QFD) and value engineering (VE) have been considered. These should be adopted to get hold of the market post demonetization. Efficient cost management is the need of the time since gestation period of getting replenishment of stock will be time consuming and hence without proper cost management a SME will not survive in the long term.

Designing and resizing of the products will be the essence of the new economy post demonetization. For SME the process of target costing will be:

·         Market research

·         Establish the target cost

·         Product planning, concept development stages

·         Value engineering, continuous improvement

·         Design stage

·         Achieve the target cost

·         Continuous improvement in later stages

Post demonetization packaging of products will be key factor to derive growth and as well as sustain growth initially.  A small different variety product being offered with large product types will be few of the key packaging aspects of products for offering in rural economy.   Designing of products judiciously followed with control over fixed cost as manufacturing trends to slowdown will be a key aspect for the SME. Market dynamics have changed and hence it’s no longer a onetime process for developing designs. Designing of pricing mix will be a key aspect for the SME as it will induce consumption within the cashless economy. Many SME will be thinking that adopting costing methods and tolls will be expensive. A practicing cost accountant is there to resolve the issues for an SME helping out to derive cost control and strategic cost management strategies.