Cost management is one of the supreme disciplines of management and controlling? In spite of all the wise treatises, many companies always find it opportune to take a drastic course of treatment or a cost-cutting project, in which all departments are then asked to make contributions or even to cut costs by a lump sum of x%. It is clear to everyone in the company that this approach cannot make sense - and everyone is also aware that political behaviour forces this approach. The alternative emergency nail is so-called benchmarking - in order to work out inefficiencies in an external comparison. This process, too, can quickly be called into question, since the incomparable is to be compared with the incomparable.
Which instruments should be used for cost management?
Is there another way? We believe yes - and on a continuous basis! What ingredients does the recipe need and how is it prepared?
The ingredients are of a cultural nature - namely, a living cost awareness and a permanent focus on the customer - of a control engineering nature - in other words, transparency, especially with regard to complexity and processes, as well as knowledge of the levers in the sense of strategy.
The success of the recipe lies in using the right levers to effectively control the cost volume. If we disregard the cultural aspect of the following measure, it is clear that in most cases the saving of cookies for guests will hardly have a significant influence on the result. The design of the products, effective purchasing and provider management, as well as a properly understood automation, are all important factors. Standardization and complexity reduction have always been effective instruments of effective cost management - if they fit the business model and the strategy.
Should I look at the product development separately from ongoing business?
In most companies, most of the margin is generated in the product area. The large automobile manufacturers have demonstrated how complexity reduction through platform strategies can lead to considerable savings potential and how, on the other hand, variant diversity must also manage the balancing act between market and approval. The lever in profitability management on the product and service side lies in development, as unwilling as development may often be to hear! Platforms, common parts, configurable variants, product optimization with regard to producibility are just a few examples of very strong levers for profitability.
In day-to-day business, each area needs its own special instruments. For example, purchasing naturally has to achieve savings targets from the target costing analysis along the parts lists through supplier bundling, framework agreements, stronger integration of suppliers into the process, etc. But an accounting department must also manage all the special topics induced by special agreements in sales, complex agreements in provider management, etc. through transparency towards these "complexity drivers" and through consistent process improvement in a standardized area. The levers are often obvious, but require the cooperation of several departments in order to improve the process. For example, the greatest lever for accounts payable accounting is still the consistent use of the ordering system - a real win-win situation for all parties involved. These kinds of savings are rarely realized through cost-cutting initiatives.
Why should this topic be anchored in the culture?
The more the organization divides its work, the further away are the economic consequences of its own actions. If the awareness is not sharpened regularly for the fact that each spent EUR must have been earned sometime once from the product margin, then one meets indifference. Then Pfennig articles are shipped between plants by express, then faulty invoices are waved through for convenience, then software is purchased and never introduced - and nobody gets excited. Nobody handles their own money that way - but if nobody cares how they behave, these behaviors creep in.
The nice thing about consistent process management is that you can be successful at the big levers and then be more generous with the small things for the organization!
