Cost Leadership

COST LEADERSHIP

Group 9

Group 9 • Asha Nachi • Kritika Prabhakar • Nitesh Kumar • Raunaq Chawla • Seshu Pinnamaneni • Vijay Pal Singh

Cost Leadership

• Cost leadership is one of the 3 viable basic types of competitive advantages according to Michael Porter. • Others Being Differentiation and Market Segmentation.

Cost Control

• Effective Budgeting • Standard costing. • Balanced Scorecard

Cost Leadership as a Strategy • process engineering skills • products designed for ease of manufacture • sustained access to inexpensive capital • close supervision of labour • tight cost control • incentives based on quantitative targets.

Cost Leadership as a Strategy

• Success of Cost Leadership depends on: • RARE • COSTLY TO IMITATE • CONSIDERABLE MARKET SHARE ADVANTAGE

TATA Steel

FACT FILE: TATA STEEL • Established in 1907 under the vision of JRD TATA

• Formerly known as TISCO now India’s largest steel company

• World’s 6th largest steel company by capacity after Tata-Corus deal

•

One of the least cost makers of steel in the world- COST LEADER

• Caters to sectors like Auto, consumer durables, construction and capital goods.

•

Won various awards like:

•

Deming Application prize, 2008- Excellence in Total Quality Management

• Prime Minister of India’s Trophy- Best integrated steel plant (5 times)

• Asia’s most admired Knowledge Enterprise Award ( 5 times in a row)

MAJOR COMPETITORS • ARCELOR MITTAL • NIPPON STEEL • JFE • POSCO • BAO STEEL • In addition to this there are various domestic competitors including SAIL, Jindal steel. •

Essar Steel

FACTORS CONTRIBUTING TO TATA STEEL’S COST LEADERSHIP • Strict Cost Control Program • Cost Reduction- Total Operating Performance • Use of modern technology, Benefit of Innovation, Continuing Modernization & • Modern Infrastructure • Low raw material cost as it owns coal/limestone mines in Australia, Oman, Mozambique • Low operating costs, Ongoing cost cutting, high domestic market growth rate, • Domestic sales promotion

TATA Steel • India is among the least cost producers of rolled Steel. • TATA is able to tap the low production cots in India. • Cost Of raw materials amongst the lowest in India. • The nearest competition comes from SA, Brazil and Russia.

Cost Factors: TATA • Labour costs • But productivity is a concern. • Comparative costs.

Cost Factors: TATA • Freight and Transportation costs come into play in Global companies like TATA Steel. • It sources Raw Material from Australia, Mozambique(Africa) and Europe. • Margins are decreasing due to the recessionary conditions. • Good news is that profits are still intact.

Reliance Industries Ltd.

Polyester Industry

• Introduction • Polyester & India • Reliance’s Contribution • Present Scenario

Reliance: Cost Leader in Polyester •Strategies Employed • Targeting masses • Efficient Production • Economies of scale • Innovation • Low cost labor • Raw material

Current Scenario • RSCM-Reduced and Sustained Cost Management.

• Category:

• Winners

• Mediocre

• Losers

• Dual focus:

• Strategic advantage

• Operational Advantage

Winner’s Strategy • Carry out cost reductions that aim to be optimal & Sustainable. • Reduce cost diagnostically, not indiscriminately, through an end to end process driven approach. • Identfy cost drivers with the goal of optimising cost value relationship and minimising negative impacts to the growth of the business as a whole.

Methodology • Secondary sources of information like D&B, Edelweiss, Annual reports.

• Other literature on cost and management accounting

• Webster, Williams. CPA. Accounting for Managers, Mc Graw Hill, 2005

• Porter,. E. Michael. Competitive Strategy, Free Press, 1980

• Grant,.M. Robert. Contemporary Strategy Analysis, Blackwell publishing, (wiley), Fifth Edition, 2007

• Homgren, Charles. Datar, Srikanth. Foster, George. Cost Accounting. Pearson Prentice Hall, 2005

Thank You