1. Business Strategy Inputs through Cost Audit
By:
CMA SUKRUT MEHTA
Kirit Mehta & COMPANY
Cost Accountants

2. Takeaways from this session
How Cost Audit is relevant despite being based on Historic Costs
What is strategy and competitive advantage
Examples of Companies which have pivoted business strategy based on Costing inputs
How to influence business strategy through Cost Audit
How can a Cost Auditor or Cost Accountant develop insights to influence Business Strategy
KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

3. Questions that require Quality Cost Information
How Much would I save if I outsourced this product?
How Cost Effective is this supplier?
How much does this customer cost?
How profitable is this customer?
How big of an incentive/concession can I give my customer/supplier to get them to hold inventory?
How much could I save if I invest in….?
How much could I save if I had fewer but longer runs of a product?
Am I better of taking more frequent deliveries or holding greater inventory?
How cost effective is this distribution channel? Am I better off outsourcing or insourcing logistics services?
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4. What is Strategy and Competitive Advantage
Strategy is about winning and nothing else!
Strategy is all about competitive advantage….. The purpose of strategy is to enable a company to create and sustain an advantage over its competitors.
The ability of a company to create better value for customers than rivals by providing products/services that are,
Of better quality than that of rivals?
Provide greater convenience to customers than that of rivals?
Lower priced than rivals?
The ability to create ‘shareholder value’ better than others
Value Creation = Profits
Profits = Revenue - Costs
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5. KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

6. Myths surrounding Strategy
You need to be a market leader to be profitable
Lower Costs always lead to a competitive advantage in the long run
If your competitor under cuts your product, you must respond by lowering your product price
If you are in a highly profitable but risky business, you must mitigate your risk by entering stable businesses
Top line growth is necessary even if we reduce profits as it aids long term sustainability
KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

7. You need to be a market leader to be profitable
Less than 3% of market leaders were profit leaders in 2013
In 2011, across 150 sectors, only 1 company was both market and profit leader
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8. Lower Costs always lead to a competitive advantage in the long run
Low-Cost Leadership
Differentiation
Achieve the lowest costs in the industry.
Pass on lower costs in terms of lower prices.
Become a mass-market player with a large market share.
E.g.: Southwest Airlines, Maruti Suzuki
Provide a ‘very distinctive’ product or service
Focus on a segment of the market (that values the distinctive attributes provided).
Higher cost structure but can charge ‘premium’ price
E.g.: BMW
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9. Lower Costs always lead to a competitive advantage in the long run
KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

10. If your competitor under cuts your product, you must respond by lowering your product price
Apart from FedEx, Apple iPhone 8 and iPhone X launch against Samsung S9 are classic examples
KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

11. If you are in a highly profitable but risky business, mitigate your risk by entering stable businesses
Where would you place ITC
KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

12. How CMAs must prepare
Read or follow news related to your client’s industry
Begin by leading with questions and provide solutions or suggestions at end
Restrict to the questions whose answers can be linked back to price, costs and productivity
Get insights from across functions and industry forums (share practices and common issues)
Meet with clients when they are free not the other way round; best to talk strategy in pre-audit meetings
Management accountants must update themselves continuously, lead with questions, understand strategy and communicate recommendations
KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

13. KIRIT Mehta & Company Cost Accountants
THANK YOU
KIRIT Mehta & Company
Cost Accountants
KIRIT MEHTA & ASSOCIATES
COST ACCOUNTANTS
KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS