Dr. D. Mukhopadhyay
Costs have greater influence on procurement, technology adoption, human resource management practices and infrastructure development. Value chain management by the CMAs ensures achieving cost efficiency and consequently developing strategic capability of a firm. It helps the firms in establishing those economic activities which provide the customers monetary value they want and this is possible with the managerial action advised by the CMAs. Moreover, the areas of weakness in the entire value chain are identified and placed before the management for appropriate action in order to take the firm to the desired level of prosperity. The purpose of value chain analysis is to ascertain how a firm creates value. A firm has to outperform its rivals in order to lengthen its stay in the market. The theory of Product Life Cycle (PLC) helps a lot in generating cost efficiency. PLC comprises of four stages and they are introduction, growth, maturity and decline. A product is attributed with different characteristics of revenue, cost profit and investment at each stage of its life cycle. Sales-revenue and profitability of a product are subject to change in each of the four stages of life cycle and cost management thorough cost analysis ensures cost efficiency for the concerned product. A product failing to be in the bracket of cost efficiency cannot sustain in the long run and more specifically it meets untimely death. During introduction stage, unit cost of a product is high because of low output and high promotional expenses. At the growth stage, high capital investment is felt to be necessary in order to meet the market demand which leads to low cash flow and it is even lower than profit and even sometimes a negative cash flow becomes a reality. During maturity stage, profit becomes healthier, investment becomes low and cash flow becomes certainly positive. Moreover, prices of the products start to decline since the firms face stiff competition. Decline stage in the PLC becomes very dangerous to any firm.
At this stage, sales decline considerably at high rate and there remains over capacity of production in the industry. Degree of competition is severe, profit falls and it compels some producers to leave the market. Therefore, cost management, profitability analysis and securing cost efficiency is the prerequisite at each and every stage of PLC and it is part and parcel of strategic management. The business undertakings should take into cognisance the importance of cost management as a tool for securing, survival, sustainability, growth and perpetuity of existence in the market. Cost management is strategic management tool and it is the cause whereas cost efficiency is the effect and it is difficult to think of one without the other and therefore cost management and cost efficiency can be used interchangeably. Cost management is the core function of the Cost and Management Accountants (ACMAs/FCMAs) in particular and it is the most valuable gift of Cost and Management Accountancy Profession in general. Strategy in simplicity stands for plan of action under different situations that prevail in dynamic economy. A business devoid of practice of cost efficiency philosophy can hardly reach its target and cost ineffective economy can hardly succeed in promoting wellbeing of the society. Therefore, every business should into consideration the role of cost management in achieving cost efficiency in order to minimise the risk of low profitability and consequently low return on investment. Cost management is science and it can deliver panacea for sustainability, growth and economic prosperity of the business. Cost efficient products can only rule the market thus it should be used as strategic management weapon in the hands of the management. Peter F. Drucker, the eminent management Scientists of the 20th Century advocated that customer is business and sales is the only window through which revenue enters into the business and all other are cost and cost efficiency is a must to retain the existing customers and cost efficiency is a must to have new customers whose presence and absence determine the rise and fall of a business.
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