Page 13 - Cost_Competitiveness
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The Institute of Cost Accountants of India
and capital investment. Steel companies Objective of the Case Study
across the globe cut production substan-
tially to align inventory levels with falling The case study presents in brief how TSL
demand. This affected the capacity uti- utilised the concept of ‘Cost Competi-
lisation level of all steel industries in the tiveness’ and implemented it to meet the
world. challenges of these diffcult times through
major initiatives in cost reduction, process
Steel prices also declined signifcantly improvement and production rationali-
across the world with more than a 50% sation without losing sight of safety, cor-
reduction in the second half, compared porate social responsibility and focus on
to the frst half of 2008-09. Similarly, spot climate change initiatives.
prices for iron ore and metallurgical coal
also came down signifcantly. For most of
the world, the overall downward trend Concept of Cost Competitive-
continued in the frst quarter of 2009 in
tandem with the global downturn. World ness
steel production in the frst quarter of cal-
endar year, 2009 was 269 million tonnes, Competitiveness is the intrinsic strength
a decrease of 22.8% over the frst quarter of a frm by virtue of which it utilises its
of calendar year, 2008. resources and skill perpetually at the op-
timum level to enable it to maintain its
Decline in steel demand was largely felt growth trajectory on a continuous and
in the US, Europe and Japan. Reduced sustained basis. Measurement of ‘ability
demand and falling prices put extreme to perform’ being ‘funds generated from
pressure on the proftability and liquidity operation’ (FFO), cost competitiveness
of all steel companies. TSL was not an ex- is conceptualised in terms of generating
ception. Existing capacity was idled and more FFO by reducing cost of resources
capital expenditure had to be curtailed and skills compared to its peer frms and
for 2009 and onwards. Steel consumption thus achieve an edge over its competi-
in the BRIC countries fell by about 6% in tors. Competitiveness is much above the
2009. The effects of the world economic ability of a frm at disaggregate level and
downturn in 2008-09 seriously impacted its ability for collective action - it is of high-
TSL’s global operations. er order - ‘the ability to perform’ (Smith,
Vasudevan and Tanniru, 1996 and Miller,
The demand for steel declined by 26% in 1998). This ability is derived from value
the UK and Europe in third quarter and chain, organising and strategic capabil-
further fallen by 57% in the UK and 44% ities.
in Europe in the fourth quarter in 2008-09.
Indian operations witnessed a less pro- It can be expressed as: C = f (K, R, S),
nounced drop in demand of 11% in the where,
same year. The operation of TSL, thus,
faced different times from 2008-09. C = Competitiveness;
K = Capital;
www.icmai.in
The Institute of Cost Accountants of India
and capital investment. Steel companies Objective of the Case Study
across the globe cut production substan-
tially to align inventory levels with falling The case study presents in brief how TSL
demand. This affected the capacity uti- utilised the concept of ‘Cost Competi-
lisation level of all steel industries in the tiveness’ and implemented it to meet the
world. challenges of these diffcult times through
major initiatives in cost reduction, process
Steel prices also declined signifcantly improvement and production rationali-
across the world with more than a 50% sation without losing sight of safety, cor-
reduction in the second half, compared porate social responsibility and focus on
to the frst half of 2008-09. Similarly, spot climate change initiatives.
prices for iron ore and metallurgical coal
also came down signifcantly. For most of
the world, the overall downward trend Concept of Cost Competitive-
continued in the frst quarter of 2009 in
tandem with the global downturn. World ness
steel production in the frst quarter of cal-
endar year, 2009 was 269 million tonnes, Competitiveness is the intrinsic strength
a decrease of 22.8% over the frst quarter of a frm by virtue of which it utilises its
of calendar year, 2008. resources and skill perpetually at the op-
timum level to enable it to maintain its
Decline in steel demand was largely felt growth trajectory on a continuous and
in the US, Europe and Japan. Reduced sustained basis. Measurement of ‘ability
demand and falling prices put extreme to perform’ being ‘funds generated from
pressure on the proftability and liquidity operation’ (FFO), cost competitiveness
of all steel companies. TSL was not an ex- is conceptualised in terms of generating
ception. Existing capacity was idled and more FFO by reducing cost of resources
capital expenditure had to be curtailed and skills compared to its peer frms and
for 2009 and onwards. Steel consumption thus achieve an edge over its competi-
in the BRIC countries fell by about 6% in tors. Competitiveness is much above the
2009. The effects of the world economic ability of a frm at disaggregate level and
downturn in 2008-09 seriously impacted its ability for collective action - it is of high-
TSL’s global operations. er order - ‘the ability to perform’ (Smith,
Vasudevan and Tanniru, 1996 and Miller,
The demand for steel declined by 26% in 1998). This ability is derived from value
the UK and Europe in third quarter and chain, organising and strategic capabil-
further fallen by 57% in the UK and 44% ities.
in Europe in the fourth quarter in 2008-09.
Indian operations witnessed a less pro- It can be expressed as: C = f (K, R, S),
nounced drop in demand of 11% in the where,
same year. The operation of TSL, thus,
faced different times from 2008-09. C = Competitiveness;
K = Capital;
www.icmai.in
