Cost control is the art of spending money, not the art of saving. How to spend every penny properly and use every resource of an enterprise to where it is needed most is a common problem faced by enterprises in the new business era.
The purpose of enterprises engaged in production and operation is to make profits and maximise profits. At present, for most enterprises, small profits must achieve rapid expansion at the same time, and it is difficult to survive without low-cost operations, which can be said that cost determines survival.
“The secret of profit margin improvement lies in cost control, and a series of processes from R&D, design to production and sales have been strictly controlled, so as to ensure high-quality products while reducing product costs, so as to maintain good profits in the fiercely competitive market.”
Then, some enterprises must achieve scientific cost control, the first thing is to correctly understand the meaning of “cost”, and then effectively control costs.
Cost control is to spend money properly.
McKinsey once said : “The giants of cost advantage are the dwarfs of cost management.” In fact, cost control is the art of spending money, not the art of saving. How to spend every penny properly and use every resource of an enterprise to where it is needed most is a common problem faced by enterprises in the new business era.
Traditional cost management is based on whether the enterprise is saving, starting from reducing costs and even trying to avoid the occurrence of certain expenses, emphasizing saving and saving.
International companies, on the other hand, believe that enterprises with the basic idea of cost-saving control are only local rich enterprises, and they have little to do except exploit workers and discount raw materials.
Therefore, we need to learn the cost control strategies and methods that modern enterprises should have. If enterprises want to have long-term benefits, they can only implement cost control from a strategic perspective. In other words, it’s not about cutting costs, it’s about increasing productivity, shortening production cycles, increasing yields and ensuring product quality.
Simply cutting costs, with cost reduction as the only goal, does not get the approval of visionary entrepreneurs. Simply pursue cost reduction, generally simple approach will consider reducing the purchase price or grade of raw materials; or reduce the material input of a single product (stealing materials); Or consider reducing the wages of the process to achieve the purpose of cutting costs. This is very dangerous, which will lead to a decline in production quality, the loss of labor resources of enterprises, and even the loss of the market they already own.
Cost control requires the establishment of a scientific mechanism.
How to control costs reasonably? Let’s take a look at how multinational companies have established a cost control system:
Step 1: Strategic goals guide cost control objectives
Getting it right is half the battle, and so is cost control. The purpose of cost control is to continuously reduce costs and obtain greater profits. Therefore, when setting target costs, we must first consider the profit target of the enterprise, and at the same time consider the competitive sales price.
Since the cost is formed in the whole process of production, the cost occurs in every link, every thing, and every activity, so it is necessary to decompose the target cost layer by layer to various departments and even individuals.
1. Enterprise project analysis
Each department is guided by marketing goals, carries out the project establishment of annual work, lists the various projects that need to be done to achieve the goals, decomposes the tasks of the project, and then analyzes each link of time, cost and performance, and compares the cost and benefit.
For example, in order to achieve the set goals in order to achieve the set goals, the marketing department needs to complete how many marketing and promotion projects, after the projects are broken down into tasks one by one, the cost of each task is reasonably budgeted, and the revenue generated is estimated.
2. Conduct industry value chain analysis
Industry value chain: is the enterprise exists in a certain point of the industry value chain, including the connection point with upstream, downstream and channel enterprises, such as supplier product packaging can reduce the handling cost of the enterprise, improve the vertical connection of value can also enable the enterprise and its upstream, downstream and channel enterprises to jointly reduce costs and improve the overall competitive advantage.
3. Value chain analysis of competitors
The value chain of competitors and the value chain of the enterprise are in a parallel position in the industry value chain, and the cost of competitors can be measured through the analysis of the value chain of competitors.
Then, compared with it, the company found out the difference with competitors in task activities, exploited its strengths and avoided its weaknesses, and won for cost advantages.
Step 2: Four-step implementation method of cost control
1. Reduce projects and tasks with unclear goals
With clear corporate goals, each project and task serve to achieve the goal. After the project establishment analysis, projects and tasks with unclear goals can be reduced.
2. Clarify the cost tasks of each department
Implement the method of “totalcost management”. This is done by first measuring the maximum amount of each cost. Then the horizontal decomposition is implement to each department. The vertical decomposition is implement to the group and individuals, and link to rewards and punishments. So that responsibilities, rights, and interests are unify. Then finally the target cost management system is forms in the entire enterprise.
3. Cost accounting, refined management
Without standard quantification of figures, there can be no talk of frugality and control.
The cost control plan is accompanied by a numerical list of controllable expenses:
Personnel, utilities, packaging, consumables, etc., and..
Uncontrollable expenses: Depreciation of fixed assets, purchase of raw materials, interest, sales expenses, etc.
Monthly and quarterly data are aggregates by the financial and sent to the managers. The data of overspending, and anomalies are specially identify in red.
At the wrap-up meeting at the end of the month. The relevant departments need to explain the over expenditure. In order to make employees become cost-aware. It is best to establish a Process and Cost Control SOP Manual. The manual proposes ways to control costs in terms of:
Raw materials, electricity, water, printing supplies, labour protection supplies, telephones, office supplies, equipment and other consumables.
Of course, effective incentives are also a good way to control costs. So cost control incentives also become part of employees’ salaries.
4. “Advance” and “Extension” of Cost Management
“Ahead” means increasing investment in technology and controlling procurement costs; “Extension” is the integration of upstream and downstream. Today’s market competition is the competition of strength, talents, product and service quality, and cost.
In a sense, cost determines the competitiveness of a business. Under the premise of ensuring product quality,reducing costs is an important way for enterprises. To gradually expand their market share and the basis for improving their economic efficiency.
Enterprise managers should change the traditional narrow cost concept, combine the actual situation of the enterprise. Make full use of modern advanced cost control methods. To strengthen the competitiveness of enterprises and meet the challenges of all parties.