August 5, 2016 / best practices, continuous improvement, Cost Management, industry news, LIT, operator training, strategic planning
With yet another recent decline in metal shipments, industrial metal-cutting companies are paying close attention to cost management as a part of their business strategy.
According to recent data from the Metal Service Center Institute (MSCI), U.S. service center steel shipments declined in June by 5.1% from the prior-year, while shipments of aluminum decreased by 6.5%. Inventories also declined, with steel down 16.5% and aluminum down 1.5% from the prior-year. The story is equally bleak in Canada, where shipments of steel are down 14.4% and aluminum declined 16.5% from a year ago.
As stated in the white paper, The Top Five Operating Challenges for Metal Service Centers, managing costs is one of the top five operating challenges for metal service centers. However, at a time when uncertain market conditions remain, manufacturers are laser-focused on the bottom line to ensure they stay competitive.
Traditionally, there are a few manufacturing cost areas that companies typically zero in on as they try to boost their profit margins. According to an article from Chron, these include:
- Labor costs
- Material costs
- Overhead costs
- Capital investment
Another way metal service centers keep costs under control is ensuring equipment is operating as efficiently as possible. This includes running at the proper settings and using the right blades. For example, as explained in this blog post, although a coated saw blade adds a premium cost upfront, the blade’s life is nearly double and can slice cutting time in half, ultimately leading to savings and increased productivity.
While all of these tactics can certainly be effective, an article from IndustryWeek (IW) notes that companies can do more than simply focus on the “traditional” costs to help manage the bottom line. Specifically, the article says that companies can indirectly manage costs for the long-term by incorporating specific goals into their overall improvement plans. In fact, the article suggests that focusing simply on costs can be detrimental to a company’s success.
According to the IW article, costs should not be the main goal or focus of any improvement program, regardless of how tempting it can be to make changes solely for the impact on the bottom line. Disguising cost-cutting as an improvement can lead to low morale, resistance to support other improvements, and lack of engagement. Instead, the article states that companies should consider the following four action steps to realize cost improvements as part of a larger improvement plan:
- Employee training. Make sure everyone from the CEO to every worker in every function receives training in the improvement tools and philosophies. Make sure top management backs the changes and keep the session impactful and memorable.
- Spend time with and discuss finances upfront. Spend time with the financial community and hold discussions on costs and savings before the improvement project starts. Work with the financial team to develop a tracking system for possible problems to prove cost savings in the future.
- Include financial colleagues. Be sure to include a person from the financial community in each improvement team. This person will be able to validate cost savings and ensure all costs are tracked accurately.
- Include costs as part of a larger plan. Improvement initiatives need to be part of a long-term plan in order to really change operations, including realized cost savings. Otherwise, the improvement will only be temporary with the risk of the organization returning to its old habits or making them worse.
By including employees and financial community members in an overall improvement plan from the start, metal service centers can experience both operational and financial efficiencies. The goal is to think about costs strategically. Balancing cost savings as part of a larger plan will benefit the organization in the long run by offering continued returns.
What cost management strategies have worked for your metal service center?