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Thursday, August 03, 2006

Target costing for Proton and other GLC

This is Part 7 on automobile industry. Part 1

Automobile industry invented a lot of management theory. The most famous is "Just-In-Time" management theory by Toyota in Japan. In order for this theory to be implemented effectively. We have to implement "Total Quality Management", "Supply Chain Management" (SCM) and may be "Enterprise Resources Management"(ERP). However, the pioneer should be mass production line invented by Ford which practice by most factory in the world until recently. When the computer has been invented and utilized in factory management. Customization can be done in low cost manner.

However, for Proton to survive. We have to borrow management theory from other industry.

Traditional costing and pricing told us we have to add cost plus margin to price our product. Apparently, this is what Proton and other Government Link Company(GLC) has been practice. Usually GLC like Tenaga, Pos Malaysia and even PLUS would said:

" Price has to increase because we have not increase the price for ......years."
" Price has to increase because we are still lowest in Asia and in the World"
"Price has to increase because raw material like petrol has increase"

Only Telekom Malaysia Bhd or more specifically TM does not used such tactic because it has to compete with Maxis and DiGi. Actually, price has decrease over time because of competition. However, monopoly business like broardband remain high and not popular in Malaysia because of lack of competition.

Sony founder Akio Morita when develop Walkman. Find that his invention is too costly to manufacturer and unaffordable to public. Thus he set a Target Price that reasonably affordable by public and try numerous ways to manufacture the product at that cost. Eventually, he find this can be done and Walkman become affordable to general public. Then he used such technique to drive the cost of other company product down to compete with Matsushita or Panasonic. This become the whole company practice and Sony overtake Matsushita or Panasonic become a leading electrical company in Japan.

Now, Target Costing become a management theory that have to be study by accounting student. Actually this is also how Ford invented it Mass Production Line to drive automobile cost down.

I feel Proton and all other GLC lack of such culture. Numereous way has been implement to drive cost down with the government help by raising tax for other imported cars. A few decade has pass but Proton still unable to drive cost low.

While other company like computer manufacturer like Dell and Mobile Phone manufacturer able to drive the price of computer abd handphone become lower and lower. Malaysia GLC alway try to increase their price.

I have ask a counter staff at Pos Malaysia Bhd why the postage charges become so high and the reply I get is "Did you pay higher price for your petrol? That is what we used to deliver your mail". Eventually, I found out that the particular staff have charge me wrongly. The actual postage should be lower. She just try to charge me higher to drive the company turnover higher so that she able to get higher bonus at the end of the year or she might get better price for her stock option. What an unethical act.

The point is, Malaysia's GLC do not have culture for Target Costing .

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1 comment:

marry said...

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