FINDINGS AND RECOMMENDATIONS

Transcription

1 FINDINGS AND RECOMMENDATIONS 1

2 5. FINDINGS AND RECOMMENDATIONS 5.1. Overview of Findings This research study has particularly concentrated on cost analysis by exploring the effectiveness of existing cost control and cost reduction techniques followed by selected units and finding out some new techniques for cost control and cost reduction in respective fields. The literature review discussed in the study, provides an in-depth overview on the evolution of the concept of cost, cost management, cost accounting and other aspects. It also highlights the different researches and the work done by various researchers and also explained their perspectives over the different angels of cost. This chapter also helped in preparing the objectives of the study and formulating the research problem. The chapter on research methodology gave a detailed description about the research process used in this research such as population, sampling, collection of data, hypothesis and scope of study. The chapter on analysis of data depicts the contribution of material cost, labour cost & overheads to the total cost of sales. This analysis chapter helped us to understand the places where cost is under control and where needs to be controlled. From the study of the selected cement units, it was observed that the major share of the cost is factory overheads & selling and distribution overheads. The selected companies are preferring techniques such as Standard Costing, Marginal Costing, Budgetary Control, Value Engineering and Quality Control, for the purpose of Cost Reduction. It was observed that these techniques failed to fulfill the basic objective of the companies i.e. 'Low Cost Manufacturing. Contrary to the popular belief that material cost and labour cost make up for a major share of the total cost, it was observed that the companies selected for the 2

3 study had control portions for material and labour cost. There was no anomaly noticed and that the actual reason for the inflated cost was something else. Upon further study it was deduced that power and fuel expenses under factory overheads and freight charges under selling and distribution overheads captured the major chunk of the overall cost. This study emphasizes on the need of incorporating innovative and effective Cost Reduction Techniques which could be used to control cost and establish the objective of companies. Now-a-days many innovative and effective cost reduction techniques are being used by many organizations. Objectives Revisited In times of difficult business climate, when sales are reducing and uncertain, companies must adopt appropriate cost reduction strategies to avoid future losses. This helps the companies to achieve their basic goal of being a 'Low Cost Manufacturer.' The objective of the present study is to find effective and efficient cost reduction and cost control techniques which may be used in the various stages of manufacturing. The objectives can be summarized as follows: 1) To study various techniques of cost control and cost reduction used in sampled cement companies. 2) To suggest the measures for cost control and cost-reduction of each element of cost separately. 3) To study the trends of various overheads in sampled units. 3

4 4) To suggest new techniques in cement companies with a view to cutting costs and increasing efficiency. 5) To make a valuable contribution in the field of cement with the help of this research Hypothesis Revisited The following hypothesis have been formulated to examine the different objectives of this study. H01: - The techniques of cost control and cost-reduction are not being properly adopted in the sampled units. H02: - Factory overheads, administrative overheads and selling and distribution overheads are not more than material cost and labour cost in sampled cement units. H03: - There is no significant difference between the proportion of components of cost and total cost of the sampled units. 4

5 5.3. Major Findings Related to Hypothesis 1 From the study done, it is depicted that earlier mentioned techniques used by sampled units, such as budgetary control, standard costing, marginal costing, value engineering and quality control, were unable to reduce cost related to factory overhead and selling and distribution overheads. 1. The surprising fact noticed was that factory overheads alone was percent (on an average) of the total cost. It is imperative to note that all the selected companies showed the same pattern. The percent of factory overheads of ACC, Shree, Birla, JK and Ambuja were percent, percent, percent, percent and percent respectively. This was not normal and required attention! 2. In order to reduce the factory overheads, it was important to find the major cause of the raise. It was found that power and fuel alone accounted to percent of the total factory overheads. The percentage of power and fuel expenses of these companies were 68.19, 55.72, 62.88, and respectively. These industries are being affected by the raising costs year after year of the power and fuel required by them for their manufacturing. The problem aggravates further due to diminishing quality of power supplied by the state electricity board, frequent voltage fluctuations, power cuts and interruptions. 5

6 3. It was found that cost of maintaining store and spares of Birla and Ambuja Cement were respectively percent and 12 percent. There can be many reasons for this: purchase of new machines, change in production lines, new product models, migration from existing to new ERPs, are all factors that generate the creation of store and spares. This situation increase warehousing costs but also hinders the optimization cost. 4. The surprising fact identified was that the selling and distribution overheads were percent (on an average) of the total cost. It is imperative to note that all the selected companies showed more or less the same pattern. The percent of selling and distribution overheads of ACC, Shree, Birla, JK and Ambuja were percent, percent, percent, percent and percent respectively. This was enough to gain attention as it was substantially higher and needs to be reduced. 5. In order to reduce the selling and distribution overheads, a search was made. It was found that freight charges alone accounted to percent of the total selling and distribution overheads. The percentage of freight charges under sampled units were percent, percent, percent, percent and percent. 6. It was also found that Birla has very low freight charges in comparison to the other companies, i.e. only percent. On the contrary, the travelling expenses of Birla were found as high as percent. 6

7 Cement Industry is a highly freight-intensive industry. Transportation is a major challenge that this industry faces. Due to non-availability of rail wagons on time, manufacturers have been forced to move progressively larger quantities by road. But road transportation is expensive. According to the above findings, the researcher can suggest that by implementing some innovative and effective techniques, the cost can be reduced to a certain limit. These techniques are activity based costing, process reengineering, kaizen costing and work study. Activity Based Costing Activity-based costing (ABC) is a costing methodology that identifies different activities in an organization. Each identified activity is then assigned some cost along with required resources to products and services, based on the actual consumption. Overheads are assigned more cost in comparison to conventional costing. Activity-based costing system is the collection of financial operation performance information. It outlines the activities of an organization and help in reducing cost, as it clearly helps to identify costly activities. It focusses on activities which could be compiled as the cost of products and present a more accurate picture of the costs, their relationship behavior. Unnecessary costs can also be identified and reduced. Therefore, the activity-based costing system can help the management to have better cost control and reduce unnecessary costs of production. 7

8 Process Re-Engineering A fundamental re-thinking and thorough re-designing of processes, to attain dramatic advancements and improvements, in critical conventional measures of performance such as cost, quality and service. The fundamental requirement of the process of re-engineering needs a fundamental understanding of the process, and creative thinking to break away from contemporary traditions and assumptions. This process will be a great help for reducing power and fuel expenses. Steps to be used in Process Re-engineering 1) Define need for change 2) Identify process of reengineering 3) Evaluate enablers for reengineering (IT & HR) 4) Understanding the current process 5) To create a new process design 6) Implementation of the reengineered process Kaizen Costing Kaizen costing is the cost reduction technique which is useful during the manufacturing phase of an existing product. Kaizen is made up of two words, "Kai" means change, and "Zen" means good (i.e. for the betterment). Basically kaizen is used for smaller improvements, but must be carried out on a continual basis. It must involve all people in the organization. Kaizen is opposite to big spectacular innovations. Kaizen is a relatively cheaper process as it requires no or little investment. 'Kaizen', a Japanese word, refers to continual and gradual 8

9 improvement through minor activities, rather than large or radical improvement through innovation or large investment technology. Work Study Work Study is a systematic, objective and critical examination of the factors affecting productivity for the purpose of improvement. It uses techniques of method study and work measurement to ensure the best possible use of human and material resources in carrying out a specific activity. From the above finding, the researcher can conclude that the techniques of cost control and cost reduction are not properly developed in sampled units. Therefore, an attempt should be made by sampled units to adopt and implement new techniques to reduce cost and improve efficiency. Thus, null hypothesis (H01) is accepted as the techniques of cost control and cost-reduction are not being properly adopted in the sampled units. 9

10 Related to Hypothesis 2 From the analysis done, proportion of total material and labour cost to total overheads is depicted as follows: Figure 5.1: Proportion of Total Material and Labour Cost with Overheads PROPORTION OF TOTAL MATERIAL AND LABOUR COST WITH OVERHEADS Total Material & Labour Factory Overheads Selling & Distribution Overheads Administrative Overheads It is generally found that materials form a high proportion of the total cost of production of a commodity. This proportion generally varies from percent. In some cases, however, it is as high as 75 percent but it is rarely found below 25 percent in the case of some products. It is depicted from the present study that on an average material cost is percent of the total cost. Labour cost forms a second important element of cost, and in a sense, it is true primary cost of production since it will always be required. It is depicted from the above study that on an average, labour cost is 5.60 percent of the total cost. 10

11 Factory overheads include all indirect costs incurred by the manufacturing department from the receipt of raw material until the product is finished and placed in a saleable condition. It has a major share in the total cost of sales. On analysis it was found that it was the percent of the total cost for the sampled companies during the period of study. Administrative overhead is the cost of framing the policy, directing the organization and controlling the operation of an activity which is not related directly to a production, selling, distribution, research or development activity or function. It has a share of 2.65 percent of the total cost. This is negligible and poses no problem. Selling and Distribution overheads come under the Sales department, which manages the sale of items produced in the undertaking. On analysis it was found to be percent of the total cost. This becomes the second largest share in the total cost after factory overheads. From the above finding, the researcher can conclude that the material and labour cost of sampled units is not higher in comparison to factory overheads and selling distribution overheads where as it is higher than administrative overheads. Thus, null hypothesis (H02) is rejected in reference to factory overheads and selling and distribution overheads but it is accepted for administrative overheads. 11

12 Related to Hypothesis 3 The significance of the proportion of components of cost to total cost was tested by using single factor Anova Test. The components of cost were divided into five portions material cost, labour cost, factory overheads, administrative overheads and selling and distribution overheads. Analysis were done separately on each component. The findings are summarized below: 1. Significance of Material Cost to the Total Cost Under significance of material cost to the total cost it is found that the calculated value of F is which is less than the table value of at 5% level with degree of freedom (d.f.) being v1 = 4 and v2 = 20. This could have arisen due to chance. This analysis supports the null hypothesis of no difference. it may, therefore, conclude that there is no significant difference between material cost to the total cost and is just a matter of chance. 2. Significance of Labour Cost to the Total Cost Under significance of labour cost to the total cost it is found that the calculated value of F is which is less than the table value of at 5% level with degree of freedom (d.f.) being v1 = 4 and v2 = 20. This could have arisen due to chance. This analysis supports the null hypothesis of no difference. it may, therefore, conclude that there is no significant difference between labour cost to the total cost and is just a matter of chance. 12

13 3. Significance of Factory overheads to the Total Cost Under significance of factory cost to the total cost it is found that the calculated value of F is which is less than the table value of at 5% level with degree of freedom (d.f.) being v1 = 4 and v2 = 20. This could have arisen due to chance. This analysis supports the null hypothesis of no difference. it may, therefore, conclude that there is no significant difference between factory overheads to the total cost and is just a matter of chance. 4. Significance of administrative overheads to the Total Cost Under significance of administrative cost to the total cost it is found that the calculated value of F is which is less than the table value of at 5% level with degree of freedom (d.f.) being v1 = 4 and v2 = 20. This could have arisen due to chance. This analysis supports the null hypothesis of no difference. it may, therefore, conclude that there is no significant difference between administrative overheads to the total cost and is just a matter of chance. 5. Significance of Selling and distribution to the Total Cost Under significance of selling and distribution cost to the total cost it is found that the calculated value of F is which is less than the table value of at 5% level with degree of freedom (d.f.) being v1 = 4 and v2 = 20. This could have arisen due to chance. This analysis supports the null hypothesis of no difference. it may, therefore, 13

14 conclude that there is no significant difference between selling and distribution overheads to the total cost and is just a matter of chance. Thus null hypothesis H03 is accepted because there is no significant difference between the proportion of components of cost and total cost of the sampled units Conclusion The researcher has made an attempt through the research to study and understand the journey of cement manufacturing from the very inception till today, when cement in an important and a core ingredient in the construction industry. The researcher also made an effort to understand and evaluate the concept of cost and its components and their impact on selected cement companies, during the period of study. A thorough analysis has been done on the various components of cost in order to through further light on them. The analysis of the components of cost (such as material cost, labour cost, factory overheads, administrative overheads and selling and distribution overheads) and their contribution to total cost was studied. This analysis enabled the researcher to not only understand the areas where cost is under control but also identify areas that need controlling of cost. The researcher also observed that the techniques of cost control and cost reduction are not properly developed in the sampled units. Therefore, an attempt was made by sampled units to adopt and implement new techniques to reduce cost and improve efficiency. The study has highlighted that the material and labour cost of sampled units is not higher in comparison to factory overheads and selling distribution overheads where as it is higher than administrative overheads. It is also 14

15 highlighted that factory overheads and selling and distribution overheads have a major share in the total cost. This needs to be controlled and new cost reduction techniques should be adopted by sampled cement companies. In order to study the significance of the different components of cost to total cost and analysis of variance was done and it was found that there was no significant difference Recommendation On the basis of above findings, the researcher recommends the following to the sampled units 1. Using Solar Plants: - In order to reduce power & fuel expenses solar plants can be the best alternative. It will require a one-time cost. Government and other organizations also encourage the usage of solar plants to generate power. In 2014, Rajasthan Solar Energy Policy (Energy Department, 2014) was implemented to encourage the use of non-conventional energy sources, especially solar power, instead of the conventional sources of energy. Ministry of New and Renewable Energy (Ministry of New and Renewable Resources, Government of India, n.d.), Government of India, under the Jawaharlal Nehru National Solar Mission, is advocating the use of solar PV systems. The government also provides subsidy to industries to help developing their own solar plants, purchasing equipment required to establish a solar plant. It is well known to us that electricity is becoming very expensive with each passing day. 15

16 Sampled units can meet their electricity needs by using solar energy and to avoid power cuts and dependence on DG sets. 2. Lean manufacturing: -To reduce stores and spares expenses sampled units are suggested to give emphasis on reducing waste by adopting some good practices. Lean method is one of them. "Lean Manufacturing", is a systematic method for the elimination of waste ("Muda") within a manufacturing system. It will also help in reducing natural waste and spoilage in terms of oil and grease. 3. Lighting: -Though the cement industry uses very less amount of light energy, still, measures must be employed to keep the use of light under control. Use of energy efficient appliances must be used, especially those that 4 or 5-star rating and necessary government approvals for energy utilizations, will also help. Use of LED lights is recommended. Fluorescent, compact fluorescent lights (CFL) and incandescent lights are typically used for task lighting in offices. The temperature of AC s should be on 27 degrees, which is a standard. 4. New Cost Reduction Techniques: -It can be recommended to the sampled units to use some innovative and effective techniques like activity based costing, process reengineering, kaizen costing and work study. This is important because the earlier used techniques used by sampled units, such as standard costing, budgetary control, marginal costing, value engineering and quality control, were unable to reduce cost related to factory overhead and selling and distribution overheads. 16

17 5. Waste Heat Recovery: -Waste Heat Recovery can be a helpful to sampled units. There is a lot of potential in the industry to recover waste heat. Waste heat recovery system is helpful in drying of materials such as coal, slag, Pozzolona, etc. Hot excess air from clinker cooler is used for this purpose. Waste heat can also help in generation of electrical power Normally, steam produced in waste heat boiler incorporated to recover heat from preheater gases/ cooler exhaust gases is used in a steam turbine to generate electrical energy. 6. Own your Wagon / Lorries: -In order to reduce the freight charges, the researcher recommends to the sampled units to utilize the own your wagon (OYW) and, Build Operate Lease Transfer (BOLT) schemes of railways. Industries must buy their own wagons and hire the same to railways on lease, which will in turn help them, as the railway gives priority in the allotment of wagons. It is also recommended to the sampled units to cover shorter distance by road. Companies should purchase their own pick-up vans, trucks, etc. to minimize the freight coming from road transport. 7. Use of alternative fuels: - Sampled units are recommended to go for Alternative Fuels to reduce fuel cost such as coffee husk, cashew nut shells, rice husk, tyre chips and rubber dust. 8. Plant Layout: -A good layout is a key to an efficient, energy saving cement plant. It is recommended that emphasis should be laid on having a good layout. 17

18 5.6. Future Scope of Research The researcher has come across many interesting topics while conducting this research. In fact, some of the results from the current research generated important question to be explored. A few suggestions and related areas where further investigations required are as follows: 1. Re-specification of financing proportions and inclusion of more proportions from the balance sheet of the companies is always a possibility. 2. The parameters of control and reduction of the cost can always be changed. 3. This study be conducting for some other companies too, or the sample size may be increased. 4. The study can be re-done with an international point of view. 5. The change in the strategies by the cement companies in response to the cost control can be another dimension for research. 18