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5 Effective Ways to Reduce Management Costs on the Factory Workshop

The core competitiveness of an enterprise is to achieve: high quality, low cost. High quality can be qualified to live, and low cost can be attractive to customers. This is especially true for modern prototype shop, which has fierce competition in the manufacturing industry.

Effective Ways to Reduce Management Costs

Mentality is the Premise of Cost Reduction

When it comes to cost, many prototype shop enterprises think it is the finance department or cost accounting, while most employees think, “I am not the boss, so the cost has nothing to do with me”.” Public things should not be used in vain”; “What’s in it for me?”

In fact, cost reduction requires everyone’s participation.

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First, as the decision-making level of the enterprise, the concept of investment is needed, which are the basic conditions that determine and influence the formation of enterprise costs.

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The second is the engineering and management personnel, they affect the product design and production cost consumption level. Third, the staff of the supply and sales department of the enterprise, whose business activities affect the purchase cost of materials and materials and the level of product sales expenses.

Cost is relevant to everyone!

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Therefore, cost reduction first depends on mentality, which is related to enterprise culture. Generally speaking, it can be divided into four mindsets:

  • Type 1: work for the boss.
  • Type 2: work for yourself.
  • Type 3: work for the team
  • Type 4: fight for your beliefs.

Cost Reduction Starts by Eliminating the Root Cause of Waste

And there are two main ways to eliminate waste!

two main ways to eliminate waste

The first way is to advocate a culture of thrift and eliminate waste.

  • We should advocate a saving culture within the enterprise, make saving become a spirit of the enterprise, and let the consciousness of saving penetrate into the heart of every employee. 
  • To seize the decision leader, to avoid global waste. Decision-saving is the saving that affects the whole world. To establish an economizing enterprise, it is necessary to start from scientific decision making and obtain the maximum output with the minimum input.
  • From the details, savings should be reflected in every bit, through fine management, with the system to squeeze out profits. People all envy the world’s top 500 enterprises very much, if careful analysis, they are also the most critical enterprises, such as Toyota, no branch, no office in the world, only in Nagoya has a sales center. 
  • Saving in purchasing. Control procurement costs should be scientifically set and compressed. The main methods are to strengthen inventory cost control; Break up into parts and purchase in small quantities; Establish procurement cost analysis system; Adopt measures such as bidding, inquiry, price comparison, bargaining, price-fixing purchase, and open market purchase; Establish supplier selection system; Plug the procurement of “rebate” loopholes. 
  • Control the core cost of the prototype shop through the savings in production. If reduce the consumption of materials and energy, improve productivity is saving; Establish raw material consumption quota standard; Establish labor consumption quota standard; Control production cost; Implement economy reward and punishment system. 
  • Savings in marketing. Marketing expense is a piece of “fat meat” that can be cut down. We should budget, analyze and make decisions on marketing cost, control unnecessary marketing cost expenditure, make every penny of advertising investment bring benefits into play, and control various expenses of marketing personnel reasonably at the same time. 
  • Savings in management. This includes meeting savings and time savings. The former can save the meeting cost, meeting budget, control costs, save the meeting time, change the meeting way to implement the meeting savings in each meeting; The latter can improve work efficiency by using time productively, doing what needs to be done, and doing it correctly.

Second Method is to Eliminate Waste Through on-site Improvement

Eliminate Waste Through on-site Improvement

Improvement is always more important than management. Instead of taking pride in punishing employees, a manager should work with employees to find ways to prevent them from making mistakes, and not provide opportunities and conditions for them to do so. The 7 tools for field improvement are.

First, create a visible waste of the scene, that is, to conduct a thorough 6S (sorting, reorganization, cleaning, cleaning, literacy, safety). 

Second, standardization operation is the best tool to eliminate waste. Like in the prototype shop, it can shorten process time successfully. 

Third, find waste by visual management. Visual management is to use graphics, charts, and other visual induction, determine the current state, and immediately generate judgment so that the problem can be quickly solved.

Fourthly, kanban management is used to explain waste, that is, to display the project that you want to manage through various management kanban so that everyone knows the current management status, which can give customers confidence and create a competitive atmosphere in the enterprise to reduce waste. 

Fifth, walk management. Require managers to go to the worksite to find and deal with problems and eliminate consumption at any time. 

Sixth, 5 why? Find the key to the problem. Often, asking why five times can help you figure out a solution. 

Seventh, the use of anti – stay correction methods can reduce waste. In fact, the more simple things are more likely to make mistakes, most people because of the neglect of some things caused by error, punishment is useless, to jointly find a way to prevent stay correction, such as the hotel card is a very good way to prevent stay correction.

use of anti - stay correction methods

5 Ways to Cut Costs

1- Factory Contracting

This is the path most entrepreneurs choose to take to motivate their employees and make them appreciate their current job. Traditional enterprises make money only in two departments, the sales department, and the purchasing department. However, after the implementation of factory contracting, each department makes money.

Human resources and offices make money by providing services to each department. The finance department became a financial center, and each department had to set up its own account. So the cost comes down, the profit is naturally high. So through what way and method to achieve factory contracting? There are five main aspects.

The first is the supply chain system, that is, the enterprise management responsibility system. The next process is the customer of the previous process. This is the core idea.

Second, the factory contract, all departments are into a comprehensive “make money” way. Turn each employee into a “management body”, form a stereo contract way.

Third, the establishment of unit and individual economic indicators. Through output quota, quality quota, consumption quota, cost quota, equipment utilization quota, total expenses quota to achieve the contract, traceability.

Fourth, the external and internal individual transaction settlement. Break the “piecework wage system” to realize “staff cross traceability system, piece-rate will lead to only pay attention to production and ignore the quality, and the employee cross back sticks to basic salary, salary benefit under the system, the principle of combining floating salary, returns, claims and complaints back and trade principle, such a staff would understand including upper and lower working procedure of three kinds of technology, there are constraints between employees and employees, no longer need the inspectors.

Fifth, the contractors set up “Banks”. Each unit set up accounting “bank” in the finance department, enterprise internal “trading currency”, in haier is called “token”, such as market management, people will be very smart, this requires the quality of the products must pass, plus pull “claims and debts” mechanism, various departments implement the system of early loan, installment payments, the finance department really become the “financial center” of the enterprise.

2- Compression of Inventory

That is, appropriate inventory is low cost. There are four main approaches.

One is to realize zero inventory, that is, no inventory, a variety of materials directly into the workshop, non-stop on the assembly line.

The second is the safety stock, also known as insurance stock or buffer stock, which is the security stock set up to prevent the shortage of goods caused by random factors. Such as some prototype shop have their cycle base on customer demand.

Third, the implementation of a centralized large warehouse, make warehouse supermarket, unified management, such as raw material warehouse, semi-finished goods warehouse, finished products warehouse combined management, can save space, reduce labor costs, etc.

Fourth, understand supplier critical management. Please bring the supplier to the warehouse of the enterprise to supply your goods on-site.

3- Equipment Maintenance and Optimization

Namely through lean management to achieve low cost. Equipment maintenance is a big hole, eroding the profits of the enterprise, equipment often maintenance is not caused by maintenance. Some enterprises have specialized maintenance spare parts library, with a large number of maintenance workers, in fact, more maintenance workers more waste, and this is caused by the incorrect concept of “I operate, you maintain”.

The enterprise shall establish three levels of maintenance, one level of maintenance by the operator, two levels of maintenance by the team leader, three levels of maintenance by the equipment management department. Maintenance workers become equipment managers or engineers, specializing in coaching staff maintenance equipment. In addition, pay attention to the optimization of equipment.

4- Reduce Labor Costs

Optimizing resources is low cost. Enterprises should transform from labor-intensive to human resources optimization. Because the competition is bigger and bigger, personnel wages have to climb, to survive, we need to pay attention to management, improve efficiency, reduce personnel allocation, to achieve the province. Need to respond to changes in the market with the least number of people, to achieve less.

5- Quality Improvement

High quality means low cost, and quality improvement means getting employees right the first time. The quality cost includes prevention cost, identification cost, and failure cost.

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