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Managing Cost (A Measure of Excellence) in the Manufacturing Value Chain
Summit Theme: Driving Manufacturing Excellence through Digitalization, Innovation & People Empowerment
Dr. K.V.S.S. Narayana Rao
Professor (Retd.), NITIE, Now IIM Mumbai
Author of Blog: Industrial Engineering Knowledge Center
https://nraoiekc.blogspot.com/
10 Million+ Page views for Online Articles
Author - EBook: INTRODUCTION TO MODERN INDUSTRIAL ENGINEERING.
https://academia.edu/103626052/INTRODUCTION_TO_MODERN_INDUSTRIAL_ENGINEERING_Version_3_0
Author: LinkedIn Newsletter - MODERN INDUSTRIAL ENGINEERING.
December 2025 Issue - Company Productivity News. Benchmarks for Productivity and Cost Reduction
https://www.linkedin.com/pulse/december-2025-issue-company-productivity-news-benchmarks-kvss-ecssc
Research Papers
Principles of Industrial Engineering
Functions and Focus Areas of Industrial Engineering
Frameworks for Productivity Science of Machine Effort and Human Effort
Industrial Engineering 4.0 - Computer Aided Industrial Engineering: Work Systems Analysis in Industry 4.0
Coca-Cola - A case study of total productivity management
Line Managers and Staff Managers in Cost Management
Operating Managers
Industrial Engineers
Cost and Management Accountants
Information Systems Executives
Measures of Manufacturing Excellence
Cost, Quality, Delivery, and Flexibility (Wheelwright [1981, HBR])
People, Quality, Delivery and Cost (C.J. McNair and W. Mosconi, July, 1987, Mgmt. Accounting)
SQDC - Safety, Quality, Delivery, Cost (Japanese construct)
Measures of Manufacturing Excellence: More details
Safety - People related - Comfort, Health, Safety from Accidents
Quality - Product and Services - Customer related
Delivery - Throughput (Theory of Constraints)
Cost - Cost Reduction though Productivity Improvement (Industrial Engineering)
Cost Management: Important Terms
Cost Cutting
Cost Control - Planning Costs and Achieving Results within Planned Costs.
Cost Reduction
Summit Theme Topics
Digitalization
Innovation
People Empowerment
Cost Management
Minimizing cost incurred in realizing the planned revenue is a core aspect of organizational success.
Minimizing Cost with Planned Revenue Realization requires Cost Management.
In cost management, all aspects of cost are effectively planned, controlled, and continually assessed for reduction.
Activities related to Cost Management
Activities related to cost management are to be organized, resourced and directed.
Cost Management Organization
Cost Management Resourcing
Execution - Resource Allocation, Directions, Authorizations
Cost Management - Two Important Areas
Planning Annual Budget Revenue and Cost - Executing Production Plan as per Cost Budget
Cost Reduction
Planning Annual Budget Cost
Budgeting
Standard Cost
Standard Variable Cost
Planned Fixed Cost (Budget)
Should Cost Estimates
For purchase
For manufacturing
For distribution
For total supply chain - Target Costing
Quoting Software for Machining Work - Spanflug MAKE
Spanflug MAKE is a cloud-based software-as-a-service solution.
You can start immediately and calculate the first parts without high initial investment for software licenses or hardware.
https://spanflug.de/en/make/prices-subscriptions/
DFMA Boothroyd Software
DFMA methods provide formulas for estimating costs from drawings for various production processes like Machining, casting and stamping etc.
Derive from Budget and Standard Cost
Line Item Wise Purchase and Expenditure Plan
Each material
Each part
Telephone
Electricity etc.
Digital Support to Budgeting
Financial planning and analysis software (IBM)
Predictive Budgeting
Cost Control - Measurement - Review - Actions
What is committed so far?
What is spent so far" - In-line with the budget, Below budget or Above budget
Flexible budget - Changes with changes in sales and production
Real time alerts - Autonomous alerts to higher level managers.
Effective cost management
Requires commitment on the part of all key managers to take responsibility for incurring cost and earning revenue.
Some organizations seem able to achieve this and remain competitive while others struggle.
Cost Reduction – Babbage - 1832
(194.) THE great competition introduced by machinery, and the application of the principle of the subdivision of labour, render it continually necessary for each producer to be on the watch, to discover improved methods by which the cost of the article he manufactures may be reduced; and, with this view, it is of great importance to know the precise expense of every process, as well as of the wear and tear of machinery which is due to it. - Charles Babbage (1832), On the Economy of Machinery and Manufactures.
Industrial Engineering
Cost Reduction through Productivity Improvement
Productivity = Output/Input
For each input, productivity can be calculated.
Industrial engineering effort is made to increase productivity of each input through studies or as an opportunity arises (innovation).
Multi-factor Productivity Increase
Simple explanation is more output from same quantity of multiple inputs.
But in money terms it is calculated. So more output per rupee of multiple inputs
Total-factor Productivity Increase
More output from rupee of total inputs
More output from the same quantity of input = Cost reduction of the production unit due to the lower input
Modern Industrial Engineering
Principles of Industrial Engineering (IE) - 2017.
Functions of Industrial Engineering
Focus Areas of Industrial Engineering
EBook: INTRODUCTION TO MODERN INDUSTRIAL ENGINEERING.
https://academia.edu/103626052/INTRODUCTION_TO_MODERN_INDUSTRIAL_ENGINEERING_Version_3_0
What are objects of industrial engineering analysis?
Product - Value Engineering, Design for Manufacture and Assembly
Facility - Production Machines and Supporting Equipment
Process - Operations and Elements
Processes are in Variety of functions - Design, Development, Production, Supply Chain, Maintenance, Service, Transport, Warehousing, Inspection etc.
System - Cost accounting system, Information system
What are areas/methods of Industrial Engineering (IE)?
Product IE
Facilities IE
Process IE
System IE
IE Economic Analysis
Areas of IE
IE Cost Analysis
IE Optimization or IEOR
IE Statistical Analysis
Productivity Management
Cost Management
IE Measurements - Time, Cost, Productivity, Consumption
Process IE
Machine Effort IE
Human Effort IE
Materials IE
IE Studies
Product Study - Process Study
Machine Study - Time Study
Method Study - Motion Study
Fatigue Study - Layout Study
Digitalization
Computer Software for Cost Management
ERP - PLM - MES - Process Control
Computer Aided Industrial Engineering
Computer Aided Process Study and Improvement- Is It Possible?
Process Productivity Improvement Using Data From Manufacturing Execution Systems
Process Productivity Improvement Through Process Mining
Process Productivity Improvement Using Digital Twins
Knowledge Management for Industrial Engineering
Innovation - Creativity
Total Innovation - Open Innovation
To promote total innovation in your organization, emphasize improvement in efficiency and quality.
True value of manufacturing will be realized only by displaying ability to innovate, adapt, and deliver purpose-driven careers.
Modern manufacturing blends AI, automation, and sustainability to create meaningful careers and economic resilience. Georgia Tech. News.
https://news.gatech.edu/news/2025/12/02/manufacturings-future-high-tech
People Empowerment
Another essential element of revolutionizing industrial engineering is innovation.
Industrial engineers need to be open to adopting new technologies, ideas, and processes.
They need to empower employees at all levels to develop innovative solutions for big problems.
Industrial Engineering Needs a Revolution to Become Effective and Sustainable: An Exhaustive Review and Outlook.
Avinash Somatkar et al. , Engineering Proceedings, Volume 114, Issue 1,2025.
https://www.mdpi.com/2673-4591/114/1/8
.
Kaizen Costing – Cost Improvement by Operations
Improvement is made an additional activity of Operations Personnel.
Taylor
Gilbreth
Mogensen
Japanese IEs - Ohno.
Building People & Culture
Training operators, involving supervisors in problem-solving, and encouraging ownership at every level lead to a stronger culture of accountability and innovation.
An Industrial Engineer on LinkedIn.
https://www.linkedin.com/pulse/driving-excellence-through-lean-industrial-garment-industry-hussain-ehsxf/
Last Slide - A Statement by a McKinsey Consultant
Scaling AI across the enterprise involves large automation projects and empowering people with everyday tools.
McKinsey Senior Partner Bernhard Mühlreiter
https://www.linkedin.com/posts/mckinsey_scaling-ai-across-the-enterprise-involves-activity-7402096800368652288-rp1m
Important Points
1. Cost Management contributes to Manufacturing Excellence.
2. Effectiveness First – Efficiency Next
3. Quality and Delivery First – Cost Next
4. First decide your offer to the customer. Next do it in minimum cost.
5. Operating Managers are the key contributors to planning and controlling costs.
6. Cost and Management Accounting persons support operating managers in accounting related to standard costs and budgets.
7. Line item wise costs and expenses incurred by each operating manager can be provided by the accounting department or system.
8. Actual costs and expenses incurred are also compiled and reported by accounts.
9. Computers are doing a lot of the work of accounting and still more accounting activities are being digitalized.
10. Operating managers have to understand the standard costing and budgeting figures and have to be committed to achieve budget revenues and costs.
11. Cost Reduction is another important component of Cost Management.
12, Industrial Engineers support Operating Managers in Cost Reduction.
13. Industrial Engineering is Cost Reduction through Productivity Improvement of Inputs.
14. There are many focus areas or methods used in Industrial Engineering.
15. Industrial engineers do variety of studies to do cost reduction of products, processes, facilities and systems.
16. Taiichi Ohno made operating managers responsible for cost reduction through operations persons apart from the contribution of industrial engineers (Toyota Production System).
17. Cost accountants. Industrial engineers and information systems persons are part of cost management organization.
18. Industrial Engineering also can be digitalized.
19. Computer Aided Industrial Engineering Modules can be part of CIM software and Enterprise Resource Management software solutions.
20. Industrial Engineering is Innovation.
21. Industrial engineers and operating managers have to promote innovation in operators.
22. Operators and Supervisors are to be given training in productivity improvement and cost control to empower them to contribute these important areas.
Thank You
Dr. K.V.S.S. Narayana Rao
https://www.linkedin.com/in/narayana-rao-kvss-b608007/
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Artificial Intelligence and Data Analysis Tools in Cost Management
Artificial Intelligence and Data Analysis Tools : A study by Karras et al. (2023) discussed the
importance of integrating AI with the Internet to achieve real-time analysis and provide accurate
forecasts.
In another study, Karras et al. (2023) demonstrated that adopting machine learning
algorithms to predict deviations can increase the accuracy of cost decisions by up to 30% in smart
factories .
Karras, A., Giannaros, A., Karras, C. N., Giotopoulos, K. C., Tsolis, D., & Sioutas, S. (2023). Edge
Artificial Intelligence in Large-Scale IoT Systems, Applications, and Big Data
Infrastructures. 1–8. https://doi.org/10.1109/seeda-cecnsm61561.2023.10470756
Karras, D. A., Petropoulos, A., & Christodoulakis, E. (2023). Smart cost prediction in Industry 4.0:
A machine learning approach. Journal of Intelligent Manufacturing, 34(3), 875–893.
https://doi.org/10.1007/s10845-023-01988-1
Popova & Petrova (2024) highlighted the vital role of AI in creating a smart, data-driven
environment.
Popova, P., & Petrova, M. (2024). The Role of AI for Smart Environments based on Big Data and IoT
Applications. 1–8. https://doi.org/10.1109/ciees62939.2024.10811252
Faisal & Abbood (2024) demonstrated the role of BD and blockchain technology in
managing the costs of electronic payment services.
Al-Shahmani (2024) highlighted the
effectiveness of utilizing ERP and sensors in enhancing production efficiency and reducing costs
within an Iraqi contracting company.
Al-Shahmani, A. L. Y. (2024). The role of artificial intelligence in reducing space and information
costs and improving production efficiency: A field study in the Iraqi General Contracting
Company. Tikrit Journal of Administrative and Economic Sciences, 20(66), 174–188.
This indicates that AI and predictive analytics tools have
become the cornerstone of developing future costing systems, especially in digital sectors .
Daway, A. M., Daway, W. M., Zghair, K. A., & Flayyih, H. H. (2025). The Impact of Digital
Transformation of Accounting Information System in Enhancing the Effectiveness of
Internal Control. Journal of Lifestyleand SDGs Review, 5(3), e05572.
https://doi.org/10.47172/2965-730X.SDGsReview.v5.n03.pe05572
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How artificial intelligence accelerates cost calculation and production planning
https://www.sirris.be/en/inspiration/automated-production-cost-prediction-using-ai
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