Page 16 - Cost

Cost Competitiveness
auto companies keep maintaining the lead that needs of governments, consumers, investors,
they have over their foreign counterparts.
A well laid down, progressive national level tasks and not for the faint of heart.
manufacturing policy which lets the state play
a more enabling role in the development and Te essence of a public-private partnership
growth of the Indian auto & auto ancillary arrangement is the sharing of risks. Central
industries would be a big help.
Q. What in your opinion are the key drivers
to be cost competitive in Auto industry?
A.Like in many manufacturing industries,
most of cost (as high as 80% in some cases)
gets built up at the designing stage. Hence, due
care and rigorous eforts need to put in lower
one's cost base as much as one can. Targets
need to be in place to arrive at the products
with right positioning for the right customer
providing right set of features. Any divergence
from these would lead to lower returns on the
costs incurred. Automobile sector is a capital
intensive industry with a long lead time on
returns made in the sphere of research and
development. Hence, a clear strategy can go a
long way in defning the future of a company.
Modular approach to capacity building
and fexibility of production of diferent
confgurations on the same line can be a boon
for companies during lean periods when
capacity utilization may drop. Also, it would
save on the cost front.
Research in new materials and adaption of
technological developments from around the
world can help a lot. For example, the high-
tech features that we provide to our customers
in defense segment can tomorrow be used for
general public.
Q. Does public-private partnership enhance
cost competitiveness?
A.Public-private partnerships (PPPs) hold
great promise for improving public services
for the poor in emerging markets. But
charting the political waters, balancing the
The Institute of Cost Accountants of India
and lenders, and making the transaction
transparent and sustainable are challenging
to any successful public-private partnership
initiative is the identifcation of risk associated
with each component of the project and the
allocation of that risk factor to either the
public sector or the private sector or perhaps
a sharing by both. Tus, the desired balance to
ensure best value (for money) is based on an
allocation of risk factors to the participants who
are best able to manage those risks and thus
minimize costs while improving performance.
Cost competitiveness is raised as PPPs provide
an organisation the capacity to raise capital at
a low cost. As these programs cover alternative
procurement and payment models (eg. toll
and availability payments), they can reduce
costs, improve project quality and provide
additional fnancing options. But practical
experiences tell us that many PPPs sufer from
cost escalations, delay in completion, missing
deliverables, etc.
A central strong leadership that is transparent
and fully able to guide through a complex
project is what is needed. Due to the presence
of many stakeholders with diferent set of
interests, a closer monitoring is required for
PPPs.
Public-private partnership also provides an
excellent opportunity to learn. Diferent types
of frms come together and get a chance to
work together. Tey learn each other’s practices
and processes and then go on to follow and
develop the best practices. A lot of cost
competitiveness also comes from the resulting
size of the mega projects that PPP usually work
on. All-in-all there is a large scope for learning
and cost competitiveness from public-private
partnership.
Author can be reached at : asimkm@
tatamotors.com
www.icmai.in 16