7 success factors to reduce your costs in manufacturing and logistics

7 success factors to reduce your costs in manufacturing and logistics

Economically challenging times call for cost reductions – be it because of financial crises, viral diseases, or external effects like increasing competition and shorter product life cycles. But while cost reduction initiatives may sound simple enough in the beginning, their implementation brings about special challenges for all hierarchical levels: they tie up capacities and change existing structures. On a strategic level, many companies also struggle with a lack of clear targets, missing transparency concerning the actual cost drivers, ineffective measures, and delays in the implementation of relevant steps.

So, how do you change that? Here are 7 success factors to keep in mind while identifying and implementing your cost reduction strategy.

1.????Cost transparency

Cost transparency is vital for any cost reduction initiative. If you want to identify cost reduction potential, you must have a clear overview of your actual expenses. A well-structured database draws attention to the right key aspects and helps you define the biggest cost drivers per area. Make sure that your database comprises all costs – including expenses for transport. Intralogistics processes are a frequently overlooked option for reducing costs.

2.????Target orientation

Any cost-cutting initiative must center on a defined cost target. These targets depend on the reasons that make the initiative necessary in the first place, such as maintaining competitiveness or increasing the profit margin in a specific product family. But target orientation doesn’t stop with the definition of your goals: the cost reduction target can only be attained if everyone involved keeps the target in mind at all times and works together to achieve it.

3.????Integrate hierarchies

To make real cost savings, employees from all hierarchies must be informed from the start and motivated to participate. The success of the initiative largely depends on consistent and committed leadership – including clear targets, providing the necessary resources, and systematically demanding results across all hierarchical levels. Operational employees on the other hand must be creative and dedicated to do their part in implementing measures.?

4.????Go to Gemba

All costs that arise on the shop floor can only be reduced on the shop floor. Evaluating cost optimization potentials in real operation is the best way to go about it – which is why on-site visits are crucial to reveal cost-saving potentials and to bring in the perspective of directly affected operational staff. ?

5.????Do the right things …

The pareto principle also applies to your cost cutting initiatives: for most intents and purposes, 20 % of effort are enough to achieve 80 % of output. Anyone concentrating on specific measures that have a major effect on costs can come closer to their cost target with very little effort. Keep this in mind for the derivation of measures and prioritize those ideas that are expected to produce high cost savings with low investments and efforts.?

6.????… but also do things right

Prioritizing measures that require little effort does not mean putting little effort into their subsequent implementation. On the contrary: once started, cost-cutting measures should be monitored consistently. A comprehensive tracking and reporting structure will help. Resources for longer-term projects, as well as continuous performance reviews are also necessary. If there are indications that the overall cost reduction target will not be attained, additional workshops and measures can be introduced in good time. ?

7.????Perspective

Keep your team as diverse as possible: apart from decision-makers and directly affected employees from the focus areas, it should also include process experts and colleagues from other areas. This makes it possible to integrate different perspectives and a broad range of knowledge in the process – and achieve sustainable results quickly.?

Structured cost reduction – in just four steps

Now that you know the 7 success factors, you might be wondering: where and how can I start implementing them, and what are necessary steps along the way? Our white paper on efficient cost reduction in manufacturing and logistics features our four-step strategy, it helps you get cost reduction initiatives done quickly and sustainably. Read more here:?https://bit.ly/3EHtP3b