Targeted Cost Reduction Programs

Why ‘Targeted’ cost reductions?  Don’t I always want to reduce costs in my manufacturing processes?

Generally speaking, you always want to aim at being the low cost / high quality manufacturer in your industry; that’s merely to say that you always want to do good work.  However, you cannot afford to continuously focus exclusively on cost reduction if you want to sustain a successful business for more than the short term.  Because markets move in cycles that are beyond your control, your year-to-year business plans should be dynamic so as to ensure optimal capitalization of current opportunities available to you.

At Business Consulting Services, our business planning service helps you effectively read your business’s market conditions and plan for optimal success.  Some years, you will be predominantly focused on revenue growth.  In others, it may be more appropriate for you to focus on product development or infrastructure improvements.  But there will be times when you will experience significant price pressure from your customers, and you will have to plan for those pressures accordingly in order to avoid profit erosion.  When it becomes appropriate for your needs, Business Consulting Services will help you develop and effect targeted cost reduction strategies in your manufacturing processes to keep pace with (or even outpace) your customers’ price concession requirements.

Is this the same as Lean Manufacturing?

No.

Lean manufacturing is internally driven within your business.  Lean strategies should be a part of your business plan every year because it is a process that continually evaluates manufacturing effectiveness and eliminates activities and results that are of no value in the supply chain.  Targeted cost reductions, in contrast, are defined by and driven to meet external factors – generally, customers and markets demands.  You would implement targeted cost reductions on an as-needed basis, when specific, well-defined opportunities (or needs) arise.

Where would I use a targeted cost reduction program?

Targeted cost reductions may be initiated to enter or stay in a market that has established significantly lower price levels than your business’s current manufacturing models can support.  Many companies have faced increasing pressure from off-shore competition, where labor may be less than 1/10^th the rates established in McHenry County and the surrounding communities.  Some manufacturing companies, when faced with such competitive pressures, have gone out of business; others have exited affected markets as a result of these pressures.  But still others that I’ve witnessed have instead defined the parameters of those pressures into specific needs-objectives, and they have established strategies to recreate their processes in ways that surpass their competitive capabilities.  These are the experiences Business Consulting Services can bring to your business.

Additionally, targeted cost reduction programs may be initiated in response to customer price concession requirements.  Particularly if your business is heavily involved in the automotive industry, you will be familiar with annual price reductions, rebates, contract discounts, or other forms of price concession required as a term of doing business.  Some of the largest companies who have survived and thrived in the automotive industry over the past decade have found ways to plan for and meet these concessions through planning for targeted manufacturing cost reductions.  Business Consulting Services can help you establish successful strategies to meet these needs if applicable to your business.

Similarly, publicly traded corporations and even family-owned companies may find themselves faced with the daunting task of increasing annual returns in spite of steady or declining revenues.  Together, we can help you define the relevant objectives and establish programs to ensure those objectives are met.

A note of caution about Targeted Cost Reductions.

As stated earlier, targeted cost reductions are not intended to be applied the same as lean manufacturing.  Targeted cost reductions are specific solutions to specifically defined cost/profit model problems.  It is not practical to assume you will be able to effectively define and implement targeted cost reduction strategies on a continual basis or for every problem.  It is important to plan for the long-term success of your business, and use targeted cost reductions only as a remedial tactic and only when necessary.  It is equally important that you avoid becoming too dependent on targeted cost reductions to be able to resolve the poor results of poor business planning, because there are limits to how much manufacturing costs can be reduced.

Effective business planning is the first step of any long-term effective business.

For more information, email us with your specific questions at dmarsh@bcsbydm.com, or call 815-728-1710 to schedule an appointment to discuss your specific needs.

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