Higashimaru Shoyu Company, Ltd.

(A): Price Control System

Janardhan Srivatsav Amanaganti

80302180001, Batch – 17, PGDME, NMIMS, Hyderabad

1) Is it Price Control System or Strategy Cost Management System?

This case is an example of Price Control System through pseudo transfer pricing strategy:-

1. The main raw material and selling price of final product was fixed in the PCS, it was only
a transfer pricing in between to see the efficiency by reducing the production cost, It
doesn’t reflect original profits when the cost of raw material was higher or selling price of
the product gets lower.

2. No individual group has complete idea on the whole cycle of process, reducing cost was
as per individual group or the case didn’t cover horizontal implementation of best
practices of one group across other processes.

3. Buying time from other groups is a good concept, when the personnel is free, but there
was no mention of any training of skills of the manpower.

4. The idea among employees, though it’s a joke, that they would be profitable if they didn’t
pay the semi-annual bonuses, shows they were too much cost conscious.

5. Implementation of automation only when there was no availability of manpower and

group thinks so, rather than it being a strategic decision to implement automation.
Decisions taken were more experimental rather than logical, no proper evaluation, mostly
intuitional.

6. Safety measures taken for benefit of workers, should have implemented on full scale
across the unit, not just by individual groups.

7. Waste water reduction steps were appreciated, again the implementations could have
across the processes.

8. Creating multiskilled technicians instead of multiple workers is good cost saving initiative
rather than strategic.

9. Reduction of costs by 7% in the very first year was impressive, its impact on sales and
revenue generation was not mentioned, so did this cost reduction help in overall
organizational building was not clear.
 10. Many isolated silo steps were taken to reduce cost, these measures of gaining profits in
individual process within one product line creates, too much of competition for cost
rather than quality and output.

Overall, I feel this kind of transfer pricing should be among the products but not divisions among
production of one kind of product.