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

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

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? KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

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 KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

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

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 KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

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 KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

Lower Costs always lead to a competitive advantage in the long run KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

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

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

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

KIRIT Mehta & Company Cost Accountants THANK YOU KIRIT Mehta & Company Cost Accountants KIRIT MEHTA & ASSOCIATES COST ACCOUNTANTS sukrutkmehta@gmail.com; +91 98333 93398 KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS