According to related reports, if the manufacturing cost of the United States is set as 1, the manufacturing cost of my country 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, blindly interpreting asking for benefits from management as cutting expenses and reducing costs is likely to accidentally hurt the enterprise.
The principle for an enterprise to measure its cost advantage is: under the premise of ensuring the same product value as its competitors, reduce the cost of the enterprise relative to its competitors, that is, try to reduce the cost without increasing the differentiation of products or services.
The act of blindly reducing costs without considering the value of products or services will never create the cost advantage of the enterprise, and sometimes even the gains outweigh the losses, which is counterproductive.
In the process of cost reduction management, enterprises often have the phenomenon of taking care of one thing and losing another, settling accounts after the fall, relying too much on finance, not insisting on quality, ignoring the interests of suppliers, and pursuing superficial fashion, etc., which will weaken the effect of cost reduction and even lead cost reduction into misunderstandings.
In my country's manufacturing industry, as the overall economic environment has entered a new normal of medium-to-high speed growth, the increase in production factors such as labor, raw materials, and energy is greater than the increase in production efficiency of enterprises, making it increasingly difficult for enterprises to operate. Therefore, continuous exploration of ways to reduce costs is undoubtedly a controllable way for enterprises to save themselves.
However, in the process of actual cost reduction, enterprises sometimes have the phenomenon of eager for quick success and quick profit, which must arouse our vigilance. The misunderstandings of enterprise cost reduction mainly include the following aspects.
Misunderstanding 1: Taking advantage of the strong position in the buyer’s market to blindly lower the purchase cost, resulting in a decline in the quality of raw materials
In order to reduce the cost of raw materials, they often call together a large number of suppliers and ask them to reduce prices. If the supplier does not agree to the company's request, the cooperative relationship will be terminated immediately. In fact, this is a misunderstanding that companies can easily fall into in reducing costs.
Faced with this situation, many suppliers had to reluctantly accept it, but they made this unreasonable request to their upstream suppliers in the next step. In the end, there were overwhelming voices of price cuts in the entire industry chain.
In the entire value chain of an enterprise, there is dependence between each link. The cost management of the next link must be based on the cost management of the previous link. The cost minimization of the previous link does not mean that the next link The cost will also be minimized, not to mention that the cost of the entire value chain will also be minimized.
Some enterprises one-sidedly pursue the lowest cost expenditure in the procurement process, and then the purchased raw materials are cheap and of poor quality. If the cost optimization is indeed achieved in the procurement process alone, but the cost of the production process increases due to poor quality raw materials, the cost of the sales department increases, and customer satisfaction decreases. If you summarize these problems, you will find that the entire Costs along the value chain are increasing.
What's more, due to the drop in purchase price, raw materials are shoddy and quality accidents are caused, which leads to damage to the company's brand.
Misunderstanding 2: One-sidedly consider cost advantages as simply reducing production costs
Most managers will naturally understand cost as production cost, and limit cost reduction to the process of production activities, and have nothing else to do.
In fact, in the traditional manufacturing industry, the production cost is only a part of the total cost, accounting for about 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 not included in the cost analysis. Often received little attention.
Therefore, while paying attention to reducing production costs, it is necessary to find ways to reduce costs from the perspective of the entire supply chain. Otherwise, if the production cost is too limited, not only the effect will not be obvious enough, but sometimes things will be reversed.
Misunderstanding 3: Cost reduction is regarded as the lowest cost in all links of the entire supply chain
The supply chain is centered around the core enterprise. Through the control of information flow, logistics, and capital flow, it starts from purchasing raw materials, making intermediate products and final products, and finally delivering products to consumers through the sales network. Some managers believe that enterprises should Pursue the minimization of expenditure costs in all links.
The supply chain is a system composed of a series of interdependent value-added activities of the enterprise. The costs of each link affect each other, and sometimes even ebb and flow. Therefore, through the mutual coordination and optimization of the various supply chain links Brings opportunities for cost reduction and pursues total cost optimization.
Misunderstanding 4: Understanding cost reduction as radically reducing institutions, streamlining manpower, and reducing benefits, and taking this as a sign of reform courage
Chinese enterprises usually have extensive management and low resource utilization efficiency. Therefore, strengthening cost management is crucial to corporate profitability.
However, the essence of cost reduction is to increase the input-output ratio measured in currency, rather than blindly increasing the input-output coefficient, nor blindly reducing costs. But what is regrettable is that many enterprises have fallen into misunderstandings in cost management, especially in terms of human cost management. They want the horse to run fast and want the horse to eat less grass. Is this possible? The result can only be reverse elimination, bad money drives out good money, and becomes a talent training base for peers.
Anyone with a little bit of economic common sense should understand what is an appropriate cost: the higher the return from paying a certain fee, the lower the cost, and if the fee paid cannot bring about a return, it is a waste. The cost of employment is not judged by the level of wages paid by the enterprise, but by the value of the employee's contribution to the enterprise.
Misunderstanding 5: Ignoring the important impact of product development and technology research and development on product cost design
Product design often takes into account the influence of market competition, consumer demand, factory production capacity, and raw material costs. Once the finished product is finalized, 60% of its cost will be locked. In terms of specific operations, it can only be achieved by improving efficiency and input-output ratio. To reduce costs, the effect is quite limited.
Therefore, enterprises should regard research and development costs as the primary link in supply chain cost reduction, and comprehensively consider design costs from the aspects of easy access to raw materials, mature production processes, stable production efficiency, and convenient product distribution, so as to reduce the cost of enterprises. The leading strategy wins at the starting line.
Misunderstanding 6: Lack of perspective and planning for dynamic and comprehensive cost analysis
In addition to analyzing cost behavior at a certain point in time, enterprises must also consider the changes in the absolute cost and relative cost of value activities over time. Some improvement measures have an obvious effect on cost reduction at a certain point in time, but as time goes by, the effect shows a rapid attenuation phenomenon. scrapped.
Enterprises can analyze costs dynamically, predict possible changes in the cost drivers of value activities, and take corresponding actions quickly to put themselves in a position of cost advantage. Ensuring the durability of cost advantages and preventing competitors from imitating depends on the combined effects of multiple factors that reduce costs. Product scale, systematic advantages, and proprietary technology costs are more durable than other cost drivers.
The competitive advantage obtained through the interaction of multiple value chain links can make it difficult for competitors to imitate and enable enterprises to maintain a lasting cost advantage. Therefore, the effect of cost reduction cannot be judged only at a certain time node.
Misunderstanding 7: Contradictions and cross-effects of cost reduction factors
When enterprises reduce costs, due to the lack of overall planning and prior planning, it often results in contradictory ways to reduce the costs of different links.
They tried to increase market share and benefit from economies of scale, but produced a variety of products with various specifications. As a result, they increased management costs and reduced economies of scale. They locate factories close to consumers to save on transportation costs, but production costs increase due to the dispersion of output.
At the same time, because the difference in product costs often affects its competitiveness in different markets, companies may overprice certain products or customers, while subsidizing prices for other products or customers. Unintentional price cross-subsidies often make Competitive manufacturers have an opportunity to take advantage of it.
China is a big manufacturing country, and the topic of "Made in China" has naturally lasted for a long time. At present, the high-end manufacturing industry is favored by national policies, and relying on its own industrial foundation, it can be said that it has strong stamina and rapid growth.
However, the low-end manufacturing industry lacks technology, brand and market position. It is struggling to survive in the competition. Moreover, the low-end manufacturing industry is precisely the main body of my country's manufacturing industry. They have no major breakthroughs in technological innovation and industrial upgrading. In the future, how to base ourselves on our own advantages, avoid shortcomings, break through the competition through efficient resource integration, and win competitive profits through benign cost reductions, so as to create opportunities for the next step of development, is a problem that everyone pays attention to and solves .
Enterprises should adjust the procurement supplier system, absorb and introduce more advanced supplier management concepts, and promote a win-win mechanism.
