"Penny Wise ,Pound Foolish" to "Pound Wise, Penny Liberal" -My experience with "Cost cutting" to "Cost reduction" techniques.

Based on my own 3 decades of diverse Industrial Experience , I wanted to register the following points that  I feel are worth considering during Cost Reduction initiatives. 

1.Never and ever incline to cut cost on Time-tested , Proven , Proactive & very Good safety Initiatives .In that process ,the organisation could sometimes land up in Severe, even Fatal safety incidents.This eventually could cost them thousands to millions of dollars .The organisation also could suffer huge Intangible losses ( Image loss,Employee Morale reduction,Fear,Attrition Risk,Panic,Stress,Reduction in "MY COMPANY " attitude ,etc ) Even reputed Organisations could make this blunder and fail to realize the hidden cost and the consequential losses involved in it. Having witnessed and come across such Safety incidents and Near misses in various chemical industries ,I honestly feel that a prompt, an appropriate and timely Investment on safety is one of the best in terms of Rate of Investment and one of the most attractive CAPEX or OPEX on Rate of Returns .The Media and social media are everyday filled with news of fire incidents in so many developing countries &poor countries. Millions vaporise/Evaporate due to fire incidents in SMEs(Small and Medium scale Enterprises ), as they hesitate to invest on basic fire protection (Which is peanuts in comparison with the Loss of Life , other valuables ,the Pain and Panic caused by Fire incident )

2. In some cases ,the entire plant stops due to lack of an adequate Equipment spare . They later realize that the cost of the spares is few dollars in front of the Lost opportunity due to the plant stoppage. This lost opportunity (When Time is converted in to Money )could run into hundreds and thousands of dollars.Here I strongly suggest , each organisation should Precisely calculate the Cost of an hour &share it transparently with the Operations team (comprising Operators, Supervisors, Engineers , SMEs(Subject Matter Expert), Leaders, Decision makers, Operations/Maintenance/QA/QC/HSE heads). The lost opportunity per hr could be from few hundred to few thousand dollars depending on the nature of the industry , the capacity of the plant (s) that is(are) affected and whether the situation of the Warehouse is in FULL or in EMPTY condition.

3.When a plant(Especially chemical plant) is partially or fully stopped , it is impossible to proportionately turn down or completely shut all the plant utilities such as Cooling water, Steam supply, Vacuum system , Instrument air, Refrigeration system, Nitrogen system,etc . So every hour lost is a loss of these utilities cost. Precise understanding of this silent cost will give power and empower the operations team to invest more time and efforts on Down time reduction caused by few hundred dollars worth spares and few dollars worth consumables.

4.When we do Pareto Analysis on the various costs and its break-up % , it is important to adopt the 80:20 Principle and focus more on the 20 side . Equally important is to know the 80 side also Because , the same Pareto Analysis also could raise RED FLAGs on the 80 side and could alert ourselves about some items( especially consumables ) that are abnormally too little consumed and too little spent.This too little consumption may not tally and synchronize with the plant SOP . It may not make any sense with the maintenance schedule /CCP /HACCP /GMP procedure.The take-home from the Pareto -Analysis could be to be more liberal on consumable cost and in return conserve the Failure cost of product which is part of the Total quality cost.

5.A detailed Pareto Analysis for each and every element of the cost of production and Sub-Pareto ......,then Micro Pareto...... will help us to pick the Red flags for high cost in the 20 side and the Red flags for too low cost in the 80 side. Everyone in the Organisational core team and leadership should be able to clearly distinguish between Cost cutting techniques and Cost reduction techniques. In a way, Cost cutting is about knowing and worrying about the PRICE of everything. Cost reduction is about knowing and worrying about the VALUE of everything.