Cost Reduction & Lean (Part 2 of 3)

QUESTION => Manufacturers – Are you achieving 500% + on Overall Equipment Efficiency (OEE)?  Are you achieving the planned ROI?

In this months’ topic series for COST REDUCTION & LEAN.

This week, we will focus on the domain of ‘COST’.  There are a multitude of factors and business operating elements that contribute to cost.  Every aspect of the business from people to equipment to infrastructure to processes to location to local culture to customers to suppliers and so on are all elements of cost.  Every step of the process from quotation to delivery are elements of cost and profitability.  No surprise right?

How often do you hear, ‘We need to reduce cost!’?  All the time, everyday and by management, customers and consumers.  It is a constant/continual pressure that sometimes influences organizations to make good and bad decisions.  The bad decisions are often under duress and the leadership has forgotten to take the company’s mission statement, purpose of being, objectives and goals into account just to achieve a reduction in works-cost.  Rash or not well thought out cost reductions can navigate a company away from the plan and business sector that they are meant to serve realizing later that it was not a good business decision.

That said, it is our duty as manufacturers to improve works-cost to be competitive and drive profitability as long as the quality of the product and services are meeting the customer and end user needs and expectations.  In various manufacturing industries, offshoring to low-cost sources are often riddled with risk that could very well end your organization’s existence.  Careful and stringent oversight in such cases is mandatory and likely with a level of effort affecting your bottom-line savings to be a false set of cost reductions.  Potentially exposing your company to a series of liabilities and poaching of your technology.

We look at a variety of cost categories when examining what is driving cost.  Cost management, financial rigors and reporting to the team, production & productivity, program management expertise to harness and guide the teams throughout the organization, quality assurance infrastructure, the supply chain as an extension of your organization, technical/engineering functions and, customer demands/satisfaction are all drivers playing a cost contribution role.

To support all of that, the robustness of the cost management system and processes to communicate to the functional organisation is of paramount importance.  Without that, the team is blind to know what to focus on and over time, if that continues, complacency becomes the operating culture.  That becomes an extremely dangerous passive mode of operation that quite frankly would take extreme measures to change the course of navigation for correction.

At the risk of being repetitive from previous blog articles we have posted, the whole organization’s ability to meet and improve upon cost is linked to the business plan, strategy, processes and practices being asked of your workforce.  Trying to reduce cost without that sorted out is far more costly than effective.

If that is in order, then delving into cost reductions for staying in the game can be done with confidence that other aspects of operation are not sabotaging your efforts.  It is interesting when we do perform business management health assessments that various functions feel there are areas of cost reduction needed of other departments.  Often, they don’t even think of what is driving cost from how they operate the business.  Focus is typically what they see in front of them and not why the cost is what it is.

The subject of cost is a continual endeavour.  Next weeks article will be focused on ‘PERFORMANCE QUALITY’ which is an output of what we have been discussing here.  Until then, build your house on a solid and level foundation, the rest will be straight and possible.

We encourage you to reach out to us on this topic.  We are practitioners with a true passion to help manufacturers like you meet your objectives.  It costs nothing to enquire and we wager that you will be glad that you did.