Reducing costs is an eternal theme of business operations, but this issue is now very important and urgent, especially for Chinese manufacturing industries that entered the era of low profits. The more nervous, the less blind, what can companies do in the process of reducing costs?
According to relevant reports, if the manufacturing cost in the United States is set to 1, the manufacturing cost in China will reach 0.96, which is quite close to that of the United States. In some industries, such as the textile industry, the manufacturing cost is even higher than that of the United States. In actual operation, it is very likely that the management will benefit from the cost of cutting down and compressing the cost.
The principle of measuring the cost advantage of an enterprise is to reduce the cost of the enterprise relative to the competitor while ensuring the same product value as the competitor, that is, to reduce the cost without increasing the difference of the product or service. Regardless of the value of the product or service, blindly reducing costs, it is impossible to create the cost advantage of the enterprise, and sometimes it will not be worth the loss, which is counterproductive.
In the cost reduction management, enterprises often have the phenomenon of losing money, accounting after the fall, relying too much on finance, no quality adherence, neglecting the interests of the supplier, and pursuing the appearance of fashion. It will weaken the effect of cost reduction and even bring cost reduction into misunderstanding.
In China's manufacturing industry, as the overall economic environment enters the new normal of medium and high-speed growth, the growth of production factors such as labor, raw materials and energy is greater than the increase of production efficiency, making it more and more difficult for enterprises to operate. Therefore, the way to continuously reduce costs is undoubtedly It is a controllable way for enterprises to save themselves.
However, in the process of actual cost reduction, enterprises sometimes have the phenomenon of quick success and quick killing of chickens and eggs. This must cause us to be vigilant. The misunderstandings of corporate cost reduction mainly include the following aspects:
Misunderstanding 1 Use the strong position of the buyer's market to blindly reduce the cost of procurement, resulting in a decline in the quality of raw materials.
In order to reduce the cost of raw materials, they often bring together a large number of suppliers and ask them to cut prices. If the supplier does not agree with the requirements of the company, it will immediately suspend the partnership. In fact, this is a misunderstanding that companies are easily caught in reducing costs.
Faced with this situation, many suppliers have to reluctantly accept it, but they will raise this unreasonable request to their upstream suppliers in the next step. Finally, there is an overwhelming price reduction in the entire industry chain.
In the entire value chain of the enterprise, there is a dependency between each link. The cost management of the next link must be based on the cost management of the previous link. The minimization of the cost of the previous link does not mean the next link. The cost will also be minimized, and it does not mean that the cost of the entire value chain will be minimized.
Some companies unilaterally pursue the lowest cost in the procurement process, and then the raw materials purchased are cheaper. If the procurement process is just about cost optimization, but because the quality of the raw materials leads to an increase in the cost of the production process, the cost of the sales department, and the decrease in customer satisfaction, the problem will be summarized and the whole will be found. The cost of the value chain is increasing.
What's more, due to the decline in purchase prices, the raw materials are shoddy, causing quality accidents, which leads to the damage of the company's brand, and it is not worth the loss. The so-called "no mistakes to sell, only wrong to buy."
Misunderstanding 2 The cost advantage is considered to be a simple reduction of production costs.
Most managers will naturally understand the cost as the cost of production, and limit the cost reduction to the process of production activities. In fact, in traditional manufacturing, production costs are only a part of the total cost, accounting for 50-70%, and a considerable part of the cost is generated in the fields of technology research and development, marketing, consumer services, etc., but they are in the cost analysis. Often rarely valued.
Therefore, while paying attention to reducing production costs, we must find ways to reduce costs from the perspective of the entire supply chain. Otherwise, too much limited production costs, not only the effect is not obvious, sometimes it will be extremely counterproductive.
Misunderstanding 3 Considering cost reduction as the lowest cost in all aspects of the supply chain
The supply chain is centered around the core enterprise. Through the control of information flow, logistics and capital flow, starting from the procurement of raw materials, the intermediate products and final products are produced. Finally, the sales network sends the products to the consumers. Some managers think that the enterprises should Pursue the minimization of the cost of all links.
The supply chain is a system of value-added activities that the enterprises are interdependent. The costs between the links affect each other and sometimes even change. Therefore, the coordination and optimization between the various supply chain links should be adopted. Bringing opportunities for cost reduction and pursuing total cost optimization.
Misunderstanding 4 Understand cost reduction as a drastic cut of institutions, streamline manpower, and reduce welfare as a sign of reform
Chinese enterprise management is usually relatively extensive and resource use efficiency is low. Therefore, strengthening cost management is crucial for corporate profitability. However, the essence of cost reduction is to increase the input-output ratio measured in monetary terms, rather than simply increasing the input-output coefficient, nor is it simply compressing costs.
But unfortunately, many enterprise cost management has entered a misunderstanding, especially in terms of labor cost management, and wants horses to run fast, and wants horses to graze less. Is this possible? The result can only be reversed. Eliminate, bad money drives out good money, and become a talent training base for peers.
What is the appropriate cost, people with a little economic common sense should understand that the higher the return on a certain fee, the lower the cost, and the cost is not wasted, it is a waste. The cost of employment is not judged by the amount of wages paid by the enterprise, but by the value of the value contributed by the employee.
Misunderstanding 5 Ignore the important impact of product development and technology research and development on product cost design
Product design often takes into account the impact of market competition, consumer demand, factory production capacity, raw material costs, etc. Once the finished product is finalized, its 60% cost is locked, and the specific operation can only improve efficiency and input-output ratio. To reduce costs, the effect is quite limited.
Therefore, enterprises should regard R&D costs as the primary link in the reduction of supply chain costs, and comprehensively consider design costs in terms of easy access to raw materials, maturity of production processes, stability of production efficiency, and convenience of product distribution. The leading strategy wins at the starting line.
Misunderstanding 6 Lack of dynamic, comprehensive analysis of cost perspectives and planning
In addition to cost behavior analysis at a certain point in time, companies must also consider the absolute and relative costs of value activities over time. Some improvement measures have obvious effect on cost reduction at a certain point in time, but the effect shows rapid decay with time. If some enterprises let the equipment exceed the design speed in order to increase production efficiency, the equipment will deteriorate in advance until scrapped.
By dynamically analyzing costs, companies can predict the possible changes in the cost drivers of value activities and quickly take appropriate actions to position themselves in a cost advantage. Assuring the durability of the cost advantage and preventing the competitor from imitating depends on the combination of various factors of cost reduction. The product scale, the systemicity of the advantage, and the cost of know-how are more persistent than other cost drivers.
The competitive advantage gained through the interaction of multiple value chain links can make it difficult for competitors to imitate and maintain a long-term cost advantage. Therefore, the effect of determining cost reduction cannot be limited to only a certain time node.
Misunderstanding 7 The contradictory and cross-impacting factors of cost reduction factors
When enterprises reduce costs, the lack of overall planning and prior planning often leads to conflicting ways to reduce the cost of different links. They tried to increase market share and benefit from economies of scale, but produced a variety of products, which in turn increased management costs and reduced economies of scale.
China is a big manufacturing country, and the topic of "Made in China" has naturally lasted for a long time. At present, high-end manufacturing industry is tilted by national policies, relying on its own industrial base, it can be said that it is full of stamina and rapid growth.
The low-end manufacturing industry lacks technology, brand and market position, and it is difficult to survive in the competition. The middle and low-end manufacturing industry is precisely the main body of China's manufacturing industry. They have no major breakthroughs in technological innovation and industrial upgrading. Next, how to base on its own advantages, avoid shortcomings, break through the competition through efficient resource integration, and win competitive profits through a benign decline in costs, thereby creating opportunities for the next step of development, which is a common concern and solution. .
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