There are many ways to control management costs, depending on the type of business you run. Today, we’ll discuss some ways you can manage your costs, especially if you run a manufacturing operation. Controlling these costs in the right way translates directly to your bottom line but doing the wrong type of cost control can result in a poor quality product that damages your reputation, simply putting off costs for a future date (often making those costs greater, for instance by deferring maintenance), or by stressing your staff that might result in higher turnover, mistakes, or other negative consequences.
The pressure to manufacture goods more quickly and streamline supply goods combined with the need to adapt to a wide range of markets have traditionally made keeping costs down more challenging, but by applying the right intelligent solutions, it is not impossible.
How NOT to control management costs
Here are some ways you damage your future by controlling current management costs (by the way, I see this happen all the time, especially in publically traded companies where the stock price is a serious concern for management):
Cutting marketing costs
The ONLY source of money coming into a firm is sales. Sure, you can borrow money to meet your financial obligations or float new stock offerings but only sales provide free money to support your business and grow. Other options require the business to incur debt. When you skimp on your marketing budget or eliminate it altogether you limit your ability to reach new customers and remind existing customers to come back.
By all means, spend your marketing budget wisely. It’s fine to eliminate campaigns with a low ROI but shift the money into campaigns that produce a favorable ROI. Shift from older channels, such as traditional marketing, into newer channels, like social media. Remember, it takes money to make money.
It’s the oldest trick in the book, deferred maintenance. Every manager who ever faced a cash flow problem or needed to pad their division’s revenue numbers is tempted to put off maintenance on the property, plant, and equipment owned by the firm. In most cases, this deferred maintenance cost returns with a vengeance in a future period. Maybe a machine breaks down and requires a costly repair or replacement when it would run longer if maintenance was done when due. Just like your automobile might need a new engine because you didn’t change the oil, the same thing can happen to your business equipment when you don’t maintain it.
Worse, a broken machine might halt the entire assembly line or keep you from sending an important document in time. This results in lower revenue and may mean higher costs if you have staff who are getting paid when they can’t work.
It’s tempting to put off hiring needed staff. Employees are a major expense in many different types of firms so you might try to get by with fewer folks. And, this might work in the short run but over the long haul, your staff will burn out, becoming less productive, taking more sick time, and making costly mistakes because they’re overworked.
You might even lose some staff if they feel overworked. Hiring and training new staff is expensive and, in the short run, they’re less productive than the skilled workers they replace.
Not hiring qualified staff
I see this all the time. Digital marketing folks are expensive if they know what they’re doing. The same goes for other professionals like cybersecurity managers, business intelligence staff, etc. They’re also in short supply. So, instead of hiring qualified folks, you hire an intern from the local college or get your nephew to come in since he took a course at the local community college or he knows how to use excel. Best case, these unskilled workers damage morale because they’re incompetent; worst case, they damage your company by making insensitive social media posts (like the one below blamed on an intern) or costing you a lot of money when you’re infected with a virus or malware.
A corollary to this is not paying employees what they’re worth. Underpaid employees might leave for greener pastures and it’s always your best employees who leave for better pay, not the ones you wish would leave. Each round means you end up with poorer and poorer quality staff. Like a sieve, the best ones go on while the least valuable employees stay. Worse, poorly paid employees might share proprietary knowledge with a competitor or generate some other cost for your firm.
With that in mind, let’s take a look at some of the best ways companies can control process management costs right now:
Best ways to control management costs
Optimization of processes
The best way to better control management costs is to look at the bigger picture. If you look at the whole picture, evaluating all of your processes, how they work together and what you could do better, then it is a lot easier to implement effective changes that save time and money. That is why auditing your processes at least annually is a very smart move.
For instance, I once consulted with a client that manufactured specialty metals for things like pipes. Some required a mirror finish, others were fragile. As the business grew, the firm added equipment without increasing the size of the plant itself. Instead of co-locating machines used to make a single product, machines were bolted to the floor wherever space allowed. When the company ran out of room, it built another building and started filling the new one with equipment. Before too long, the company was a sprawling campus with over a mile of buildings with a rail line connecting them. A single product might move from one building to the next. Depending on the process required to generate a finished good, the material might move back and forth multiple times from building to building. Not only was this expensive in terms of time and money, but it also resulted in waste when a product was damaged in transit.
The company should take a look at the big picture. List the primary products produced and the machines necessary for each product. Now, move machines for the production of one product together. Do some products share certain machines? Then put the remaining machines necessary close to the shared machines. It’s simple when you look at the big picture.
Use staff smartly
If you want to control management costs, then instead of hiring staff based on your busiest periods, try to create a system of hiring that works with the flow of business. So, when there is more demand, hire more employees on a temporary basis. When demand is lower, let them go. For instance, there’s a high demand for tax preparers from about January through April but low demand other times of the year. Big commercial tax firms hold training classes to get new folks ready for tax season and then hire them to satisfy peak demand. After tax season, they go back to being housewives, students, or whatever to reduce the firm’s payroll. A few talented temporary employees might even find permanent jobs.
Obviously, this kind of staff optimization only works if your company experiences peaks and troughs in your management processes, but if that applies, it can cut costs significantly by lowering your wage bill by a huge amount and ensuring that workers are always productive.
Alternatively, you might consider outsourcing. For instance, a manufacturing firm might do contract manufacturing by turning over production to another company. Or, you might hire an accounting firm to handle your bookkeeping until you reach the size where you need full-time staff.
The use of cleanrooms
Good cleanroom design can definitely help keep process management costs down when you manufacture products that must be free from particulates. That’s because clean rooms help prevent contamination during the manufacturing process. When fewer products are rejected due to dust or particle contamination, the whole operation is faster and the cost of buying materials and transforming them is reduced.
Right now, there are a number of exciting opportunities to automate many of your processes using the latest software packages, AI (artificial intelligence), or robots. You can automate processes you never considered possible in the past with new technology. For instance, you might use a chatbot to offer 24/7 customer support on your website or via social media. These tools are sometimes invisible to the customer who assumes they’re chatting with a human being.
Today’s robots have human-like hands that can assemble something as delicate as a sandwich wrap and as tough as dipping products in corrosive chemicals. They don’t get tired, call in sick, or take a vacation. Of course, they do need regular maintenance and take some pretty intense training.
Consider a four-day week
Various studies show that productivity is not affected greatly, and is sometimes higher when companies switch to a four-day week. In one such study reported in Forbes, the company found productivity increased by 13% and happiness among staff increased by 14%. Hence, you do more with less and keep your staff, as well.
When you work one less day a week, that also means one less day you need to pay for heat, electricity, and various other operational costs. So it is not a silly idea, really might help control management costs and improve your bottom line.
Use a smart inventory system
One of the biggest costs in manufacturing is often the cost of inventory. By using smart inventory software that operates on a lean manufacturing process where you have just enough inventory available at any given time, you can save a lot of money.
Carrying excess inventory involves a whole host of costs including, storage, insurance, and possible loss. You also need more warehouse workers to store and pick from the warehouse and you might have inventory that becomes obsolete before you can use it.
Invest in staff training
It is fair to say that, the more training your employees have, the more efficient they are in completing the various process you require of them. This means you can produce more for less money. It is also fair to say that the better trained they are, the fewer mistakes they make, which means your compliance as a business is higher, waste is lower, and you have a happier workforce.
In order to better control management costs, you need to invest in your existing infrastructure while also making some bold decisions about how your run your business but it is worth it when you save money and increase efficiency by a significant margin.
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