Enabling cost measurement and cost management in …ciitcm.in/ccpres19/8. TCM Architecture -...

Slide no. 1Total Cost Management

Enabling cost measurement and cost

management in businesses


What gets measured, gets managed

Peter Drucker

3M principle: measure, manage, maximize


Background


Economic Recovery still away

• GDP growth in Q2FY20 is expected to be around 4.9%. Q1FY20 growth was 5%,

which was lowest in 24 quarters.

• Subdued Private Consumptiono Consumer durables production declined by 7% in Q2FY20 compared to 3% decline in Q1FY20.

• Slowdown in Industrial Activity o Industrial production declined by -0.4%, shrinking to a 30 quarter low in Q2FY20 compared to 3%

growth in Q1FY20

• Slowdown in Investment continueso Capital goods production declined by 17% in Q2FY20 compared to a 4% decline in Q1FY20

o Capacity utilisation in Q1FY20 declined to 73.6% from 76.1% in Q4FY19 and falling below 10 year

average of 75%

• Low Consumer confidence o Consumer sentiment on employment and income saw a sharp decline after Mar’19

o Sentiment on discretionary spending has fallen below demonetization level but sentiment on

essential spending remains unaffected

Economic indicators


Global GDP & Trade War

Trade war between US and China intensified with imposition of higher tariff by both.


Evolution of cost management


Traditional ways of Cost measurement

Cost is measured only for statutory purpose

Cost data is kept confidential

Aggregate cost reported

No ownership at operational level

Total cost / impact of decision not known

Business wise (SBU) profitability not known


New ways of Cost measurement

Cost is measured to manage and take decisions in the context of value creation

Cost data is shared to the operational team for optimum management

Cost data is deciphered at different levels

Ownership at operational level is encouraged with Total Employee Involvement (TEI) activities

Total cost / impact of decision is well informed by way of dashboards and sensitivity analysis

Profitability is measured and managed Business wise (SBU)


Evolution of cost management

Cost incurring

Cost accounting

Cost measurement

Cost management

Value creation through TCM


TCM Maturity Model

Exemplary

TCM Enabled

Operational

Functional

Minimal


Relationship between cost, price, margin

Cost

+Profit

=Price

Traditional approach Target cost approach

Price

-

Profit

=Cost

A decade back

Price

-Cost

=Profit / Loss

Cost to be measured and managed to protect the margin

Evolution from Sellers market to Buyers market


Challenges for 2W industry


Two wheeler industry sales - monthly

Q1 Q2 Q3 Q4

LY 6536 6756 5748 5421

TY 5899 5591

% growth -9.7% -17.2%

Apr-Sep19 Apr-Sep18 Growth

11491 13292 -13.6%

Cumulative Sales ‘000 unitsQuarterly Sales ‘000 units


Increase in cost of buying 2W in last 2 years

Buying cost of 2W Increased due to insurance regulation, safety norms and

road tax

Commuter/ Scooter Premium Moped

% increase due to Insurance

policy

6% increase

(~Rs 3800 - Rs 4000)

6% increase

(~ Rs 6000)

9% increase

(~Rs 3800)

Increase in Price due to Safety

norms (ABS/CBS)Rs 350 - Rs 600 Rs 7000- Rs 7500 Rs 350 - Rs 500

Total % Increase ~7% ~13% ~10%

2000

3000

4000

4350

7000

65000

71000

77000

83000

89000

Starting Price BSIII to BSIV Import Duty Insurance ABS/CBS BSVI New price

Price increase of 31%


Challenges faced by industry

Lower economic growth

Consumer awareness and demand

Disruptive initiatives without readiness of infrastructure

Regulatory changes

Heavy discounting on brands

Huge advertisement spends

Frequent intervention with launch of new variants / products


TCM @ TVSM


Strategies for margin management

Revenue Maximization

Perceived value

creation

Geographical mix

Model mix

New business

Diversification

Cost Reduction

ROTI approach

Value engineering / Target costing

Localization / Global sourcing /

Alternate sourcing

Make or Buy

E-Buying

Negotiation

Waste Elimination

Digital initiatives

Value stream

mapping


Case study – Revenue Maximization


Perceived value creation – TVS Jupiter

Jupiter

Jupiter ZX

Jupiter ZX Disc

Jupiter Classic

Jupiter Grande

Premium colors

Premium interior

panels

LED Headlamp

Digital Analogue

Speedometer

Adjustable

Shocks

Jupiter ZX + Disc

Brakes

Premium dual

tone seat

Stylish

Windshield

Classy chrome

pillion handle

with cushioned

back rest

Smartxconnect –

Bluetooth

connectivity

Premium cross

stitched seat

Chrome mirrors

Awe-inspiring

pick-up

Econometer

Largest leg

space

External fuel

filling

Margin: X

Margin: X +

Margin: X ++

Margin: X +++

Margin: X ++++


Case study – Cost reduction


Methodology

for

improvement

Waste

elimination

Process

optimization

Efficiency

improvement

Technological

improvement

Process

innovation

Gap between standard and

actual

Gap between standard and best in class conditions

Gap between standard and

theoretical conditions

Gap between standard and zero

loss conditions

Recoverable

loss

Opportunity

loss

Theoretical

loss

Ideal loss

Full potential identification with ROTI approach

UOM : Rs/Veh

Level I Level II

384 304

Recoverable

loss

Opportunity

loss

104

Theoretical

loss

257

Ideal loss

358R O T I


Case study – 3D printing


Difficulty to source vehicle parts for obsolete models from vendors after 7 years

since tool & dies are worn-out and quantity is low.

Higher capex is required to get new molds and lead time is high. Financially not

viable as the quantity is low.

MOULD INJECTION MOLDING M/C PART

PARTSOLID RAW MATERIAL CONVENTIONAL MACHINING

MACHINING

MOULDINGCURRENT METHOD


3D printing software “slices” the model

into many 3D cross-sections.

After brain storming, 3D printing idea was explored

3D MODEL

ALTERNATE TECHNOLOGY-

3D PRINTING

PART

Eliminated:

1) Mould design & development

2) Source of moulding m/c

3) Solid raw materials

4) Conventional machining

5) High skilled designer & operator

6) Lead time- 3months

Possible to reduce lead time for spares supply to 24 hours by 3D printing

Cost of imported machine was high. Raw material for printing to be sourced

from the same supplier and variety of materials for printing is less.


Develop 3D printing machine locally with support of vendors

Targets Taken for 3D Printing machine development

• Able to print raw materials available in open market

• Can print all polymers including carbon fibre

• Should be reliable and can work continuously for one week

• ROI less than 2 years

Partnered with local Start-up to develop the machine and the

machine was developed with 10% of the import machine cost

UOM: Rs per part UOM: in days


Digital initiatives leading to

Cost measurement and management


Warehouses

Value chain

DesignSourcing &

process planning

Manufacturing

Sales & Service

SuppliersManufacturing

plants

Process design & development


Digital Factory

Business Needs

Improve Profit and profitability

Improve Market share

Improve customer satisfaction

Reduce lead time for New product Introduction

Improve Effectiveness of people and system Cu

sto

mer

sat

isfa

ctio

n

Pe

op

le &

Sys

tem

s

Ret

ail S

yste

m (S

ales

an

d m

arke

tin

g)

Sup

ply

Ch

ain

(Man

ufa

ctu

rin

g)

Ne

w p

rod

uct

in

tro

du

ctio

n

Secure Technology Platform

Digital factory

Speed

• New product introduction

• New plant / facilities introduction

• Make to order

• Meeting demand

• Competition

Speed

• New product introduction

• New plant / facilities introduction

• Make to order

• Meeting demand

• Competition

Cost

•Power and fuel cost

•Stores and consumables

•Labor cost

•Productivity

•OEE improvement

• Material cost

Cost

•Power and fuel cost

•Stores and consumables

•Labor cost

•Productivity

•OEE improvement

• Material cost

Best in Quality

• Customer satisfaction

• First time right

• Lower rework

• Tighter tolerances

• Track and trace

Best in Quality

• Customer satisfaction

• First time right

• Lower rework

• Tighter tolerances

• Track and trace

Regulatory Compliance

• Factory and labor law

• Health and safety

• Industry standards

• Process adherence

• Pollution standards

Regulatory Compliance

• Factory and labor law

• Health and safety

• Industry standards

• Process adherence

• Pollution standards

Ever increasing complexity

• New products

• Multiple variants

• Complex process

• Equipment complexity

Ever increasing complexity

• New products

• Multiple variants

• Complex process

• Equipment complexity

Need to leverage IT/IOT to increase speed, reduce cost, improve quality, ensure compliance and to manage the increased complexity to meet business needs.

Challenges


On an average 18% increase in conveyor utilisation

UOM : %

Online Conveyor utilisation

18% 19%

OT cost reduction compare to last year 37%


Live JIT status

Resulted in inventory reduction by 11% at TVSM and better transparency with suppliers

List

of

supp

liers


Truck Turn Around Time Dashboard

Truck utilisation improved by 40% resulting in transportation cost reduced

List of

suppliersList of

suppliers


10 mins3 mins

3 mins15 mins

5 mins3 mins

Time taken on Consumption posting fuel

Inference : 1. 100% work activities are done manually2. Approximately 39 mins consumed for entire chain of consumption posting process

Flow meter reading

Stores request creation

Stores request Printing

Approval

Communication to Production

planning

Stores request Posting

High manual work content


Auto trigger & auto posting for fuel

Flow meter PLC & Software

SAP kanbansystem

Factory

Readings Daily consumption

Material despatch

Auto triggering

Fuel consumption Dashboard


Auto trigger & auto posting for fuel

Trend of consumption posting

Before After

Inventory carrying cost

Before After

Manual activities such as data collection, SR posting, schedule preparation and

manual reports eliminated

No surprises

Reduction by 50%


Case study – Power cost


Total Energy

Electrical Power Process Fuel

Boilers Burners

Machines

& Process

Compressors

Lightings

Energy stratification


Energy conservation Explore alternate methods

Optimal utilization of Plant & equipment's

Energy efficient equipment's

Electrical System utilization

Optimizing the Utilities (Lighting, Compressor

& HVAC)

Fuel Switching(Solar / Heat Pump)

Improve machine Efficiency through Standard

cell.

Identifying & eliminating the waste.

Alternate Source of Energy.

Alternate Source of Heating.

Renewable Energy

- Wind

- Solar

- Bio Gas

Methodology adopted

To Reduce Power & Fuel

Cost


Energy conservation initiatives

Lighting application - change from Induction to LED

Saving of 90,000 units

Variable frequency drive (VFD) implementation

Saving of 2,80,000 units

Solar air heating for paint baking oven

Saving of 10 tons of LPG, CO2 reduction of 29 tons

Direct fired boilers using LPGSaving of 180 tons of LPG

Energy consumed:

4.5 lakh unitsEnergy consumed:

3.6 lakh units

Indirect heating using HSD Direct heating using LPG


Alternate energy initiatives

Renewable Power contributes to >80% for TVSM

TVSM Share of PowerUOM : %

Commissioned 5.8 MW Roof top solar power plant and

tied up for 48 MW of Wind power.


Critical success factors

Conserve cash by sweating assets and tight working capital management

Focus on value creation to the customers

Build mega brands

Improve direct & indirect employee productivity

Skew investment towards future technology

War on waste

Optimize the cost structure

Improve operational efficiency & speed across the organization


Thank You

Enabling cost measurement and cost management in …ciitcm.in/ccpres19/8. TCM Architecture -...

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