Creating competitive advantage through costing and manufacturing-Bharat Earth Movers Ltd: Banglaore.

Abstract

Since inception, BEML has been offering high technology products in the areas of Earthmoving, Railways and Defence. With the emerging stiff competition, the company needs a competitive advantage through cost reduction. This study brings out ways of achieving this through effective costing and manufacturing techniques. The present costing system throws light on only two areas namely the direct material cost and direct labour hours, for cost reduction. Since they cannot be used beyond certain extent without compromising on quality and features, a new costing system has been devised and proposed through this study. In the proposed costing system,Seven cost drivers other than direct material and direct labour hours have been identified for immediate attention. An equation to determine cost of production has also been arrived at based on the unit cost of the drivers. Additional cost drivers would serve the purpose of correctly identifying cost reduction opportunities. Three methods to gain competitive advantage have been demonstrated by applying them to a group of Wheel loaders. Group technology has been proposed in manufacturing activities. Two cells of machines have been suggested to process 270 components. This would result in reduction of 55 to 60 per cent in expenditure on Production control and Inspection and drastic reduction in cycle times, leading to substantial increase in productivity. 2. . Value adding activity analysis carried out on one component points out that roughly 80 % of the activities performed during manufacturing do not add value to the product and hence indicates the necessity to simplify the system. Attempt made to demonstrate possibility of part/variety reduction sees potential for reduction in the same by about 25 % which can give substantial savings in overheads. We hope that the study has opened up new vistas for cost reduction and would therefore aid in Creating Competitive Advantage for BEML.