total cost management division - imtma.in council/rcs/rcs mar 2019/tcm... · metal holding 30000...

Total Cost Management Division

Total Cost Management

Division15th Mar 2019

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CII – Centres of Excellence

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1

43

2

9

6

5

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1. CII TCM Division & Institute of Logistics, Chennai

2. CII Institute of Quality, Bangalore

3. CII- ITC Centre of Excellence for Sustainable Development, New Delhi

4. CII – Avanta Centre for Competitiveness, Chandigarh

5. CII Naoroji Godrej Centre of Excellence, Mumbai

6. CII Suresh Neotia Centre of Excellence, Kolkata

7. CII – Triveni Water Institute, Jaipur

8. CII - FACES

9. CII – Godrej Green Business Centre, Hyderabad

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CII – Sohrabji Godrej Green Business Centre Hyderabad, India


CII- Sohrabji Godrej Green Business Centre

Inaugurated by Dr. A. P. J. Abdul Kalam, the then President of India on 14 July 2004


Quality Speed

Results

Costs prices

Formidable Business Challenge….

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CII TCM Governance Structure


CII TCM Division - Mission

“To enhance the cost competitiveness of the Indian industry through TCM

Movement”

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TCM - Activities

MSME clusters Maturity Model Rating

Advisory Services

Tools & techniques

Awareness

Conferences

Training

CII TCM Division – Service Verticals

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Cost Correction

Course Correction – Strategically designed business model

Responsive to “economic crisis” &“profitability challenges”

“Viable Business Model with Efficient and agile value chain”

“ Business & Cost” are intricately aligned9


Changing Perspective of Profit

COST + PROFIT = SALES

SALES - COST = PROFIT

SALES -PROFIT = COST

In a sellers market cost and profits are reimbursed by the customer

▪ Multiple Players in the Market with Market determined selling price

• Focus is on cost control and reduction• Cost information is for tactical decision making

• Selling price is determined by market forces: • Profit is determined by the risk/return profile of

business • Focus on cost management to achieve the targeted

results

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Machine Tools Manufacturing – Unique Challenges

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Customer

1) Price Point

2) Customization

3) Precision

Market

1) Demand fluctuations

2) Lead time

3) Imports

4) Competition

Internal

1) Talent Pool

2) Price-Cost gaps

3) Capacity utilisation


Profitability Dilemma in business12


Market Context – Price, Cost & Profit

Competitive & Economic Challenges

Innovative Cost Structure Disruptive Cost Structure

Recessionary and Economic Challenges

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TOTAL COST MANAGEMENT

WHY?

WHEN?

HOW?


Cost Management View

ACTIVITIES VA NVA AMOUNT

Melting time 80000 80000

Del cast wt 135000

135000

Metal Holding 30000 30000

Superheating 25000 25000

Rework on Q 35000 35000

Moulds hold up 30000 30000

TOTAL 335000

VA= Value Adding NVA = Non Value Adding


Why do we need TCM?

Can we reduce

the prices

without reducing

the value?

How much do our

products cost us?

Which are our

profitable products and

what are the profits?

Which customer

segment is most

profitable?

Are our make or

buy decisions

right?

Total Cost Management DivisionConfederation of Indian IndustryTotal Cost Management Division

• Customer Offerings

• Business Model DynamicsPortfolio

• Market driven

• Penetration PricingPrice

• Competitive cost structure

• Efficient Value ChainProfit


Business Paradigm of Machine Tools for growth & profitability

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Cost Focus Importance Scope Cost Pressures

Cost Focus - Own Strategic Product customization Cost of Complexity

Lead time challenges Cost of extra resources

deployed

Quality Parameters Cost of quality

Product price Parity Price – Cost gaps

Cost Focus -

Customer

Strategic Re-work Re-processing cost

Precision / Accuracy Trials cost

Flexibility Cost of changeovers


Is Cost your key ‘profit’ indicator?

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Where is your business on “Cost Barometer”?

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Objectives of ‘cost maturity assessment’

❖To grade the company’s cost management

system into a 5 level hierarchy.

❖To evolve a certification process.

❖Develop Roadmap for the industry to emerge as

a cost leader

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CII TCM Model - Journey

❖ Conceptualized in the Y 2009

❖ pilot studies – 7 companies

❖ Participated by close to 75 companies as of now

❖ Across sectors – Auto, FMCG, Paper…..

❖ Across sizes – Rs. 100 crores & Rs. 50,000 crores turnover

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▪ First of its kind in the world and CII has an IPR

▪ Assessing the systems and processes

About the TCM Maturity Model ™

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International MOU’s

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➢ In an increasingly VUCA environment,

companies are under tremendous pressure

to improve profitability by 10-15%

➢A very comprehensive and disciplinedClosed Loop Total Cost Management

approach is required to;

a) Create competitive cost advantage

b) Adapt to the volatile market conditions

c) Sustain customer value

All rights reserved. 2

Global Business Challenges & TCM26


“Changing Business Complexity – Enhanced Competitive Challenges”

Expanded Business Opportunities

Expanded Markets

Expanded Customer base

Expanded revenue

Expanded Production

Larger Product portfolio

Higher Risk incidence

Shrinking business share

Lower Customer loyalty

Sinking Profit

Lower productivity

Lower product Margins

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Transform into –

“A World Class

Cost Management

Company”

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For businesses to get ‘cost & value right?...

NVA across the value chain?

Right product / customer profile?

De-risking business model?

Right product design (cost economical)?

Future cost challenges?

Course corrections through cost corrections?

Align functional roles with cost economical impact?

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Minimal

160-259

Functional

260-389

Operational

390-539

TCM Enabled

540-699

Exemplary

700-1000

Levels of Maturity Model Rating

Neither Tough, Nor Easy

Cost Leader

Cost Accounting

Standards

World

Class

Overall Rating: 1000 Points

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Level – 1 - Measurement

Level – 2 - Management

Level – 3 - Analytical

Level – 4 –

Viable Business

Level-5

Levels of Maturity Model - Hierarchy

Resource Measurement

Performance Metrics &

Benchmarking

Viable activities, Products,

Customers

Efficient Value chain

Resilient Business Model

– Identifying fault lines

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WHAT IS ASSESSED?

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Cost Information Maturity

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Hidden Profit & Hidden Cost

ApparentProfits

Costs

Revenues

HiddenProfits

Hiddencosts

Customer A Customer BCustomer A Customer B


Cost Focus Evaluation36


Total Cost Management is not a better product cost accounting mechanism

BUT it is a

A good understanding of costs

+

A good response mechanism to cost

+

A culture for analysing cost data

+

Ability to relate cost to strategy

Total Cost Management37


CII Cost Maturity Model - Index

Business Strategy –

TCM alignment ERM – Cost

Impact

Product / customer mapping

R&D – Cost Excellence

Operational Efficiency

Supply chain efficiency

Environmental

Sustainability

Costing Function

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CII TCM Assessment - Approach

Sectoral and business

challenges

• Intensive study and analysis by CII

Enterprise level approach

• Through CEO & Functional head discussions

Milestones in the cost

competitive Journey

•CII TCM Report –Unique & customized recommendations

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Deliverables of Maturity Model ™

❖To identify the current level in the

Maturity model for the organization.

❖To develop a road map to progress

to the next hierarchical level in the

Maturity model.

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Signing up NDA – Non Disclosure Agreement

“To retain confidentiality for the data and systems of the

company”

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About the ReportFocus Area Scope

Strategy driven ‘cost

management’

CEO & Functional heads roles

Value chain focus Efficiency drive & cost structure improvement

Cost sheet (Reflecting

business process)

Algorithm, Structure, measurement, stake holders, review & decision

tool

Product / Customer cost

correction

Business Viability improvement

Cost maturity

improvement

Culture, System & Strategy dimensions in business

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TCM Maturity Model Benefits:

• Reconfiguring Product / Customer portfolio

• Viable product design

• Value chain corrections

Enabling Strategic Decision Making

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CII TCM Maturity Model Benefits:

❖Measurement systems - Robustness

➢ Re-engineering the cost sheet

➢ Cost corrections for better profitability

❖Value chain of business

➢Visibility of costs – Mapping, Correction, Reporting & Decision support

systems

➢Measuring and driving efficiency through course corrections

❖Building resilience into business model

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Approach

Ownership

Create transparency of true spend by cost category and functional area1. Visibility

Closed Loop

ForSustainability

2. ValueTargeting

Identify and quantify savings levers to drive reductions in spend

4. Blueprint& Execute

5. ControlMonitori3. Category

Ownership

Instill organizational accountability for cost performance

4. Blueprint & Execute

Develop & execute detailed cost reduction projects to capture value

5. Control & Monitoring

Implement tools & processes to develop sustainable cost management capability

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1.Visibility 2. ValueTargeting

3. Category

TCM - Full Visibility Of costs for improvement

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Model - Process

Introduction

Signing up NDA

Visit & Submission of Questionnaire

Receipt of Questionnaire

Plant Visit

2 Days Assessment by CII Team

Report Submission

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Module Wise Scores

TCM Maturity Model Questionnaire : Scoring Pattern

No. Frame Work Score

I Formulation of Business strategy & Integration of TCM 110

II Aligning risk management with cost information 100

III Mapping of strategic product / customer segment in TCM 100

IV New product design 90

V TCM & Sustainability 100

VI Operational improvements and its integration with TCM 120

VII Maturity of cost accounting process 210

VIII Cost Centers 50

IX Integrated Information System enabled TCM 100

Working Cost Accountant team 20

Grand Total 1000

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Final Score – Pecking order

0

100

200

300

400

500

600

700

800

900

1000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43

Minima

l

Functional

Operational

TCM Enabled

Exemplary 3

7

21

13

3

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JSW Steel - Award49


CII TCM Maturity Model® Rated Companies50


Auto & Auto

Ancillaries

51


Steel & Cement Paper, Packaging

52


Pumps, Equipment &

Engineering

53


FMCG & Consumer

DurablesSugar & Agri-

Products

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General

Manufacturing

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Professional Charges (Specially made for IMTMA)

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Category Turnover Single

Plant

Multiple Plant

(In crores) (In Lakhs)

Category A (Small) Less than 100 2.25 5.75

Category B (Medium) 100 – 250 3.50 4.25

Category C (Medium Large) 250 – 500 4.25 5.00

Category D (Large) 500 - 1000 5.10 5.65

Category E (Very Large) Above 10000 6.80 7.30


To Sum up

Today ‘world class TCM’ is not a choice. It is a necessity

for sustained growth and profitability

CII TCM Maturity Model rating is an excellent framework for

building cost competitive journey of businesses

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आभार.धन्यवाद |

THANK YOU !

For Further details;

M Nagesh BabuPrinicipal Counsellor

CII – TCM Division

+91 9849909683

[email protected]

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total cost management division - imtma.in council/rcs/rcs mar 2019/tcm... · metal holding 30000...

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