Manufacturing Productivity – Cost Reduction: Why the Confusion?

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Today, manufacturers face the constant challenge of providing competitive products to an ever-changing and dynamic marketplace. Besides the daily challenge of producing a quality product within the four walls of the factory, there are numerous external factors at work in the global marketplace influencing customer perceptions and product demand patterns. We constantly wrestle with all these challenges both internal to our operations as well as the external marketplace forces at work, but are we really making progress in our efforts to become more competitive? What are the immediate things we can influence and fix in an effort to position our organizations for future growth? Have we lost our focus on improving manufacturing productivity because it is so often associated with “cost-reduction,” that dirty and despicable term? Have we minimized or compromised our overall improvement efforts as a result of our desire to avoid using this term? So why the confusion?

I have spent over thirty years working with manufacturing companies in an effort to improve their operations and systems. Typically, my introduction into an organization focuses on a specific project need in which my skills are called upon to reimagine or redesign a process or system that is broken or negatively impacting the productivity or future growth prospects of the company. In many of these project situations, senior management has recognized the need to find a “game changer” that will significantly transform the way their organizations operate as they seek to make themselves more competitive or more attractive to their customers and prospects. Unfortunately, many of these business transformation initiatives that are well intentioned are quickly reclassified by the employees as “cost-reduction” initiatives and quickly take on the negative perception associated with that term. As you can well imagine, once the dreaded “cost-reduction” label is associated with any major change initiative or transformation project, the rumors fly, minds start to wander, suspicion flourishes and projects with good intentions lose steam.

So why the confusion? Are cost-reduction programs in themselves evil and bad almost always producing negative consequences, or could they be viewed positively? Are there examples of organizations that have undertaken major cost-reduction initiatives that are thriving today, have saved themselves or the jobs of thousands of workers? Could reducing costs in an organization ever open up new markets, fuel growth and expansion or reinvigorate a complacent workforce? Could a cost-reduction program actually lead to a brighter future? We all need to think through these questions and decide if the term “cost reduction” deserves this negative connotation? After further review, my guess is that the answer is……No!

Many manufacturing companies today face a relentless struggle to reduce their costs in an effort to become more attractive to their customers. In many cases there is ongoing pressure to deliver the same product or an enhanced version of the same product at a reduced cost each consecutive year. Have you ever been the recipient of a vendor/supplier program that has a five percent cost reduction built into the contract year over year? As a response to these types of programs, management typically scrambles to initiate a corresponding “cost-reduction” project in an effort to find some offsetting productivity gains to help the organization maintain its margins. Ironically, in this case, the “cost-reduction” initiative that is launched to counteract the additional cost pressure from the vendor/supplier program is often heralded as a positive step in thwarting the potentially sinister plan of the vendor/supplier. Have you ever been a participant in those types of conversations?

I will leave you with a short list of some manufacturing productivity helpful tips that you may be able to leverage as part of your business transformation efforts or “cost-reduction” activities.

  • Identify and eliminate non-value-added activities and time wasters in your operation
  • Make an effort to better understand your customers and what they are willing to pay for as it pertains to your products or services
  • Create and institutionalize a team-based environment focused on continuous improvement
  • Initiate a company wide problem-solving program that addresses root causes and not symptoms
  • Design products for manufacturability (less complexity typically means lower cost)

Please feel free to carry on with your cost-reduction projects in an effort to improve the overall competitiveness of your organization. Don’t be ashamed, your cost-reduction project may be the key to a brighter future, new markets, future growth and increased profitability!!

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