Rick Duris’ Systems Integrator’s Notebook

 

Ok, so based upon talking to almost every one I know in manufacturing and distribution management, here’s the directive I have received, which I am passing on to you:

 

It’s Time to Cut Costs.

 

If you’re a manager in a manufacturing or distribution company, you probably have been told this by your management in some way shape or form to cut costs.  So this particular column is about just that.

 

My reason should be obvious.  Depending upon your industry, the economy is influencing the management decisions on almost a daily basis. And management doesn’t like what they see short term.

 

So here you are a manager, and you’ve been told cut costs…

 

Now What?

 

Depending upon your previous work environment you’ll either have a cakewalk or a hard time making significant progress.  Some companies naturally run “fat”, while other companies naturally run lean and mean.  What follows are some ideas which I have seen successfully deployed without hindering revenue or morale.  Here’s goes:

  1. The first thing you need to know about cutting costing is that your management is asking you to be selective.  This process isn’t about swinging the ax without thought.  Anybody can do that.  The people who do it best know exactly the result their targeting and expect to achieve.
  2. The easiest thing but one which doesn’t necessarily entail cutting costs is management curtails new initiatives other than ones which will increase revenues or cut costs immediately.  By immediately, I’m talking now.
  3. Get explicit on how far/deep the cost cutting should go.  It’s one thing to say cut costs.  It’s quite another to say cut 10% of the costs over the next 60 days in manufacturing without impacting productivity.  Clarity helps a lot during the cost cutting process.
  4. Look for and eliminate for non-value added costs.  I wrote a column about how to do this once, check my archives if you want to know more… www.btgi.com.
  5. Renegotiate agreements with suppliers.  Here’s the trick: Understanding a couple of facts: 1) Your suppliers and vendors are waiting to be asked.  2)  Everybody else is asking them, so they have some experience at it.
  6. Restructure your management.  Not in a bad way…  In a more optimal/efficient way.
  7. Restructure your employees compensation to pay for performance/production.  However which way you define performance.  In fat times, salary is way simpler to compute.  But in lean times, it is cost effectively better to pay for what you get.  Ala carte, if you will.
  8. Look for ways to involve your employees.  Create a team.  Now most people don’t get this, but I’m hoping you do:  Employees want to help.  And their little secret is that they know exactly where the fat is.  Involve them.  Again they too are waiting to be asked.  You see, they implicitly know the alternative:  Lay-Offs.
  9. Look at your payables.  Meaning the checks cut every single week.  Make two piles:  1)  Costs I can eliminate, reduce or influence, 2) Costs I can’t touch.  Resolve to immediately impact pile number one by a definitive amount the very next week.
  10. Hire a consultant with deep experience and knowledge about cutting costs.  They can see the forest from the trees.  Warning:  Do not hire a rookie or someone without successful experience in producing the results you want.  Go for immediate, specific, measurable, implementable results.

 

  1. Review your systems (keep in mind I’m thinking wholistically).  This is probably the greatest source of untapped cut costing opportunity there this.  Most people regard their systems as untouchable.  Especially the longer they’ve been installed.  But here’s a secret:  They can be immediately improved/tweaked/optimized to cut costs associated with money, inventory,  transportation, labor or resource utilization.  Again, it’s obvious to an experienced outside eye.  They can look at kind of thing, and almost immediately tell you how to optimize the process to cut costs or improve performance.  And again, your people know

 

During times like these, most people, especially employees look at cost cutting as some sort of necessary evil.  It doesn’t have to be that way.

 

Know this: Companies like Walmart have made cost cutting a corporate culture.  Nothing wrong about it at all.  Where people potentially make mistakes is when they delay the cost cutting strategies, in the face declining sales and profitability.  For whatever reason.  Either  they’re asleep at the wheel.  Or they have their proverbial head in the sand.  Or they are being unrealistically optimistic. Pick one. Then as a result of the bad news, people tend to over compensate and in effect throw out the baby.

 

That’s when it gets really painful.

 

The trick is stay calm, not to panic, or make things worse than they already are.  Pay attention on what the facts are (i.e. reality), make sure your feedback mechanisms are in place and focus on your goals.  And don’t forget that action beats wishful thinking any day of the week.

 

It is simple for me to say these kinds of things… it’s a lot tougher executing, especially being .  Believe me when I say, I know.  But I also believe you have a huge opportunity available, especially in times like these.

 

Hopefully I have been of some help, given the limited space available.  If you have other ideas, email me, ok?

 

Fo more information contact RainMakers, 847-251-3327 or email: jon@rainmkrs.com