In our time, the issue of reducing production costs is quite acute, since the world economic crisis and all companies strive to keep costs as low as possible.
First of all, attention should be paid to the compliance of the proposed measures to reduce costs with the long-term goals of the enterprise, since only in this case the company will receive a positive result from the implementation of the cost optimization program. The approach to determining cost reduction measures must be very serious, some methods are aimed at obtaining a quick result, but contrary to the further goals of the company, so there is no need to rush to make such decisions.
To protect against competitors, the company needs to organize effective system cost management that will meet the requirements:
A strategic focus in the field of cost management must be ensured, minimizing costs is one of the important components of a strategic business development plan;
The objects of management should be clearly defined, since it is impossible to talk about the management of different types of costs without knowing the reasons for their occurrence;
In cost management, all documentation should be treated equally at all levels of company management;
Planning should be about warning negative consequences, and not build on the already accomplished facts;
Management should be carried out constantly, and not from time to time.
To maximize profits, you need to continually identify and cut costs. Accounting information is insufficient to work on minimizing costs, since accounting records costs as they arise. Therefore, for effective cost management, it is necessary to develop a cost calculation scheme that takes into account all the details. Then you need to create a "tree" of costs (at different enterprises, depending on the specifics of the industry and products, it will have a different "crown"). In this case, the costs must be classified so that it is convenient to compare them with each other. After all, if at one level of such a “tree” there are too many types of costs and they differ tens of times in absolute values, then accounting will be ineffective.
To calculate the cost and its changes over time, the process is classified by stages: supply, production and sale of products. The base cost of products includes the cost of raw materials, semi-finished products, excise and raw materials taxes, and some other costs. Then, in the production process, production costs are included in the cost price. Further, the cost increases in the process of selling products. After the sale, there are additional costs: taxes, for example. If we consider the formation of the cost in this way, then we see the possibility of applying measures to reduce costs at each stage of such a cycle. Experts believe that the reserves for reducing costs are distributed as follows: supply 50%, production - 10%, sales - 40%. The manager must at any time receive reliable information about changes in the cost of any commodity item, for all products or for a group of goods. For this, the management accounting system must be well established. To determine how the overhead costs are reduced, the difference between them and the marginal profit changes, it is necessary to analyze what costs the cost of goods consists of at each stage of the production cycle. The profit margin is the difference between the selling price and variable costs... As a result, management accounting helps to determine the efficiency of production as a whole and in its individual areas.
To reduce costs, you need to analyze cost centers and responsibility centers. A cost center is a cost allocation object that aggregates costs associated with one or more functions and specific activities. The Responsibility Center is an organizational unit headed by a manager who is responsible for the magnitude of costs.
Analysis of reported data by cost centers allows us to make a conclusion about how high and in which center of responsibility the costs are high and what caused it. Cost management by responsibility centers assumes to include in the estimate those costs for which rationing, planning and cost accounting are provided. The allocation of the cost center for individual departments can be based on different criteria: organizational structure, equipment, operations and functions.
The cost center accounting system provides for the measurement of costs that are not related to output.
To better organize accounting by cost centers, you need to carefully detail the costs so that the costs accounted for in a given place are direct to it. The organization of such accounting at industrial enterprises makes it possible to strengthen control over the formation of costs, to promptly receive information about their feasibility, as well as the reasonableness of the distribution of indirect costs by cost bearers.
Let's consider the main ways to reduce production costs.
The main condition for cost reduction is continuous technical progress. The prime cost is decreasing due to the introduction of new technology, automation and mechanization of production, improvement of technologies, the introduction of new progressive types of materials, etc.
To effectively control costs, you should adhere to some rules:
1. All costs must be taken into account, then their number will be less. Cost savings can often be achieved by keeping full records of them. For example, to reduce telephone costs, a company might start keeping track of outgoing calls by identifying the time, date, and purpose of the call. As a result, costs are reduced due to the decrease in staff calls on personal matters.
2. The work collective should strive for a common goal - to reduce costs. To do this, you can conduct a conversation with employees, explain the importance of reducing costs, listen to suggestions for saving money.
3. Classify your costs according to the degree of dependence on the volume of production. Most accounting systems divide costs into fixed and variable costs. Also classify variable costs according to how easily they can be adjusted when production activity changes. For example, direct material costs rise or fall, almost automatically responding to changes in production volumes. But direct labor costs can be adjusted only if the management takes appropriate measures (staff cuts, wage cuts, etc.). On the other hand, management is unlikely to be able to cut its rental costs in response to falling production volumes.
4. Classify costs according to how easily they can be adjusted using alternative solutions.
5. Try to track not only the structure of costs, but also the reasons for their occurrence in the enterprise. By eliminating the cause of the unwanted increase in costs, the costs themselves are eliminated. For example, with large entertainment expenses, find out why a lot of company funds are spent: to expand the client base, due to the number of signed contracts growing, or because control over the spending of entertainment funds is not conducted.
Consider cost reduction techniques:
Reducing labor costs, for example, reducing the number of employees, reducing wages;
Reducing the cost of raw materials and supplies;
Examples: renegotiate in your favor the terms of contracts with existing suppliers; find new suppliers of similar products at lower prices (domestic analogue of imported products). Reduce the number of intermediaries and purchase raw materials and supplies from the manufacturer. Use cheaper components as much as possible. Help suppliers reduce their costs (provide a manufacturer with raw materials for the production of his products at lower prices, in turn, the purchase price of products purchased from this manufacturer also decreases). You can purchase material from one supplier together with another buyer to receive a volume discount. If possible, produce the required materials yourself. Introduce into production resource-saving technological processes that allow saving on the cost of raw materials. Give priority to the procurement process for raw materials and supplies. Revise the policy of accounting for raw materials and materials in order to reduce tax payments.
Reduced production costs:
Rent: revise the lease in your favor, sublease the unused space, move to another building or premises where the lease terms are more profitable, make a calculation: it may be more profitable for the company to buy the building or premises than to rent it.
Utility payments: introduce strict control over the consumption of resources, install metering devices, you can find new options for paying for services, for example, pay utilities utility bills
Integration and disintegration. Consider how to reduce costs through vertical integration with suppliers or customers, or through horizontal integration with other manufacturers. Can a company decide to reduce costs by expanding its business to other parts of the production cycle, refusing to cooperate with subcontractors? Or, on the contrary, is it more profitable for a company to narrow down its production area by giving up part of the production cycle or auxiliary work to another manufacturer?
Marriage and other unproductive expenses: in order to minimize losses from marriage, it is necessary to study the causes of the appearance, identify the culprit, then take measures to eliminate losses; introduce programs for the rational use of production waste.
Conduct an analysis of advertising costs, identify whether advertising brings income in excess of advertising costs, whether an increase in advertising costs is associated with an increase in production; choose the most effective advertising methods; reconsider contracts with advertising agencies in their favor or find an agency with better conditions; consider the possibility of settling with advertising service providers through barter.
Additional cost reduction measures:
Investigate whether the company can reduce costs by reducing research and development costs; maintaining wide range products; market research, advertising and promotion of goods or services; maintaining a wide range of clients; maintaining a certain quality of services; careful selection of raw materials and components with specific technical characteristics; wages; professional development of employees; mechanization production process; organization of production; maintaining the existing policy regarding the maintenance of machinery and equipment; speed of order fulfillment; maintaining the flexibility of the production process; support of distribution channels of manufactured products.
Government support: can the company benefit from any government entrepreneurship support program by: lobbying for the adoption of relevant local and federal legislation or receiving benefits and subsidies.
Here are the most common mistakes made when cutting costs:
1. Incorrect identification of the most important cost items to be reduced. Such mistakes are less common for small and medium-sized enterprises, since, in general, the management of such enterprises has a good idea of their most significant expenses. But as the company grows and its business becomes more complex, management may not notice the increase in costs in certain areas. For example, a company pays attention to certain explicit costs and does not notice significant and often unjustified costs that are hidden under “other costs”.
2. Incorrect identification of the cost objects of the enterprise.
For example, by striving for low manufacturing costs per unit of output, a company may start producing more goods than it can sell. As a result, the desire to reduce production costs per unit of output can lead to their overall increase due to overproduction. Instead, the company should focus on reducing overall manufacturing costs.
3. Loss of individuality and, as a consequence, the competitiveness of the company's products, especially if the quality was the hallmark of the product. This cost-cutting effect is particularly detrimental to the company. While drastic cost cuts can increase a company's bottom line in the short term, it will irreparably harm a company in the long run. For example, by saving on staff recruiting and training, a fashion store may benefit from a certain amount. However, such savings can undermine the store's prestige and lead to the loss of customers.
4. Serious deterioration of relations with the parties involved in the business (suppliers, company employees) due to inconvenient conditions for them.
5. Reducing costs in critical areas below the acceptable limit.
For example, by reducing labor costs, a company can lose key employees.
6. Misunderstanding of the mechanism of interdependence of the company's costs. Indeed, sometimes a general reduction in costs can be achieved by increasing them for some particular type of activity. Example: Increased travel costs may result in contracts with new suppliers who sell raw materials and supplies cheaper than older suppliers.
Vladislav Gagarsky Head of Optimization of Management Systems at Nevskaya Consulting Company
Production Management magazine, No. 1 for 2009
- In the period of the current financial crisis, when business activity is falling and, accordingly, production volumes are decreasing, for most enterprises, cost reduction becomes a matter of survival. But this process must be approached very carefully so that vital aspects of the company's activities are not affected as a result.
Cost sharing approach
In principle, all costs can be divided into two types: productive and unproductive. Productive costs include costs that add value to the final product in the eyes of the consumer, unproductive costs that do not add such value to the product. The line between the first and the second is very thin. For example, what type of costs should be attributed to the wages of basic production workers? At first glance - to the productive ones, because the workers are paid for the output. But in the case when the payment was made for idle time due to the fault of the employer, the corresponding costs cannot be recognized as productive. Moreover, in a situation where workers work tirelessly, but due to the saturation of the market, no one buys products, the costs will also be unproductive.
The type of cost determines the overall strategy for reducing costs during a crisis. So, production costs should be reduced in proportion to the projected decline in product sales... For example, if a 30% decrease in production is expected, then the volume of purchases of raw materials and components must be reduced by about the same (taking into account the current stock in the warehouse).
And here to get rid of non-productive costs completely... Moreover, it makes sense to do this regardless of the onset of the crisis and the degree of its influence on the business situation, since losing money is always unpleasant.
Within the framework of non-productive costs, in turn, several groups can be distinguished. Let's name and briefly describe each of them:
Costs caused by overproduction of products. The essence of the problem is revealed by one phrase: "We produce more than we can sell." Overproduction is caused by shortcomings in production planning, inadequate understanding of customer needs, and large production backlogs. As a result, a lot of resources, time, etc. are wasted. (which ultimately leads to cash costs), but there is no return (revenue).
Costs due to defects and alterations. Defects and alterations, that is, an incorrigible and correctable marriage, are harmful from the point of view of generating unproductive costs for the same reason - they waste resources, and there is no return (or, in the case of a correctable marriage, it is relatively small).
Costs associated with unnecessary movement and movement of materials, parts, tools, due to their irrational location. Simple examples: the worker is forced to go to receive the right tool into the utility room, instead of reaching out and taking it from a nearby rack; workpieces are constantly shifted from one end of the workshop to the other, rather than moving them sequentially to minimum distance between sites. Such movements and movements do not add value to the final product and, therefore, are simply useless.
Inventory-related costs. Excess stocks "deaden" the working capital, and also require additional storage costs. The reason for their occurrence is the lack of planning needs, the tendency to purchase "in reserve", the presence of "illiquid assets". For example, in one company it was planned to create a subsidiary farm, for which the appropriate inventory was purchased, but the project was frozen, and considerable stocks lay in the company's warehouses for a long time.
Costs incurred by over-processing. The latter means the addition of products of such properties and qualities that are not in demand by the consumer and for which he is not ready to pay. For example, why sell gilded teapots if you can boil water perfectly in ordinary ones? The example, of course, is very conditional, but it conveys the essence of the problem.
The costs associated with waiting, that is, in fact, with downtime. Downtime for an enterprise is a lost profit. They arise for various reasons, such as non-binding external and internal suppliers, lengthy equipment changeovers, renovation work on equipment, poor planning of production capacity utilization, etc. So, at the enterprise, the main product of which is pasta, the production line had to be stopped periodically due to the fact that the warehouses of finished products were completely filled.
To eliminate or minimize each of the listed types of overhead costs, different methods depending on the cause of the loss. Approaches to reducing non-productive costs are presented in table. 1.
|
Overhead type |
Ways to reduce losses |
|
Overproduction of products |
1. Improving the quality of production planning. 2. Application of the model of "pull" production. 3. Reducing the time for setting up and changing production lines. 4. Conducting a study of potential demand. |
|
Defects and alterations |
1. Implementation of “foolproof” systems, which do not allow taking actions that worsen the quality of the finished product. This can be a sensor that stops the production line when a defect is detected, or it can be part seats located in such a way that it is impossible to confuse the assembly order of the product. 2. Implementation of control systems for the execution of operations. |
|
Excessive movement and movement of materials, parts, tools |
1. Optimization of the movement of materials, parts, tools in production processes. 2. Rational organization of workplaces, production lines, storage locations. |
|
1. Optimization of inventory planning. 2. Application of the "Just in Time" methodology, implementation of the "Kanban" system. |
|
|
Excessive processing |
1. Changes in the consumer properties of a product, production technology, etc. |
|
Expectation |
1. Alignment of the load of production lines, synchronization of processes. |
We form a cost reduction program
The next step towards reducing costs should be the development of a program of measures that will achieve such a reduction. The general sequence of actions in the formation of such a program includes several stages.
1. Collecting data on the structure of enterprise costs.
At this stage, data is collected on the current and historical state of costs (items of costs and their value) of the company. As a rule, the necessary information is available in the departments dealing with economics and planning: PEO, budget control department, etc. Moreover, it is desirable that the information comes from sources not only of accounting, but also of management accounting, since in the latter it is usually presented in a more complete and adequate analytical form. The best option- use the data of the budgeting system, if any. It is advisable to collect historical information on costs for at least three years, on a quarterly basis, and preferably monthly, and make an adjustment for inflation.
2. Analysis of the received data on costs.
At this stage, first of all, the changes in costs over time are investigated. Thus, it is possible to study the seasonality of changes, as well as to analyze the influence of various external and internal factors on the value of costs (to reveal correlation dependences). Further, the costs are ranked by value. Finally, it is necessary to determine the degree of cost control. Under the manageable understand costs, the amount of which the company can influence to some extent (for a given production program). Thus, it is unlikely to be able to influence the cost of raw materials produced by a limited number of suppliers. But personnel costs can be managed. Of course, it makes no sense to consider uncontrollable costs in the future for their reduction.
3. Determination of promising areas of cost reduction.
The most promising areas of cost reduction are items that are the largest in absolute terms and at the same time manageable.
It is necessary to analyze how the decrease in the amount of costs will affect the overall results of the company. For example, a significant reduction in personnel costs without changing the technology of work will cause discontent among employees and can “wash” the most effective personnel from the company. And without qualified personnel, the company simply cannot work.
So, in the course of analyzing the current situation with the organization of labor and wages at enterprise "B" it was found that, despite the low level of the average wages of workers (15 thousand rubles), its growth rates in January, April, May, June 2007 outstrips the growth rate of labor productivity. This testifies to the inefficiency of production due to low volumes, excessive headcount, as well as regular unreasonable payroll expenses in the form of various payments for incomplete workload: payment for work at night (up to 118 thousand rubles per month); payment under a work contract (up to 131 thousand rubles per month); overtime payment (up to 66 thousand rubles per month); payment for work on weekends and holidays (up to 290 thousand rubles per month); payment for combination, replacement (up to 160 thousand rubles per month).
At the same time, the analysis showed that work in shifts is organized irrationally: shift schedules are drawn up without taking into account the actual workload of personnel and they deliberately include overtime, the total duration of which reaches 40% of the planned working time fund (while according to Art. Labor Code RF overtime should not exceed 120 hours per year for one employee). Moreover, the presence of regular (monthly) processing was explained not by the need for production, but by the desire of the heads of structural divisions to increase the wages of subordinate workers (processing is paid twice, a bonus is charged on it). For the same purpose, work at night was specially planned (they are paid in an increased amount - 40% of the salary (tariff rate) - amount).
Based on the analysis of the above data, the following directions of cost reduction were proposed. In accordance with the calculations carried out, a 50% reduction in the costs of these payments will save the annual payroll in the amount of 4.5 million rubles. However, in order to maintain (and for some positions - growth) wages, the exclusion of unjustified payments from the payroll must be compensated by an increase in the constant (salary) or variable (bonus) part of the payroll. Such measures will entail an increase in the competitiveness of workplaces, the motivation of personnel to work with greater intensity with a smaller number. It is advisable to increase the level of wages through the rational organization of labor - the optimal placement of personnel, taking into account the incoming load.
4. Development of measures to reduce costs.
After the most promising directions cost reduction, it is necessary to study how costs are formed in each direction, how business processes proceed, and understand what should be done to reduce costs. It is advisable to involve heads of departments, external experts and consultants in this work, who, based on the information collected, will be able to offer several alternative ways to solve the problem.
So, in the course of the analysis of data on manufacturing defects of finished products, carried out for a group of pasta factories, it was found that one of the main reasons for the occurrence of an inevitable marriage is the so-called start-up marriage. It is related to the fact that drying chambers it takes a certain time (up to 2 hours) to fully reach the required drying mode. Defective finished products are processed, however, additional electrical energy is consumed. This means that by lowering scrap rates, businesses will reduce their energy costs.
In addition, during long stoppages, production lines need to be cleaned of dough residues (estimated at up to 200 kg of dough, or about 160 kg of flour). This dough is non-recoverable waste. Therefore, by minimizing the number of changeovers of production lines, it is possible to minimize the technological rejection of products and, accordingly, costs.
In particular, reducing the number of equipment changeovers by only 1 time per month for each line will save about 250 thousand rubles within all three factories. in year. And a 50% reduction in the level of manufacturing defects will make it possible to reduce electricity consumption by about 565 thousand kW per year.
Thus, reducing the costs associated with high level manufacturing defects should occur through the following activities:
- reduction in the number of changeovers of production equipment;
- timely cleaning of production lines;
- adherence to the order of the assortment without abrupt transitions of technological parameters of the production process;
- exclusion of re-grading in finished products (cleaning of bins).
The proposed measures to reduce costs are distributed according to the cost of their implementation into three groups: costless, low-cost, and high-cost. The first group includes activities for the implementation of which the company's funds are not spent or the costs are so insignificant that they can be neglected. An example of a cost-free measure is reducing the receipt of defective products by strengthening incoming control over the supply of spare parts and materials. The company independently sets the criteria for classifying events as high- and low-cost. A high-cost measure will be, for example, the reconstruction of high-voltage power transmission lines with the transition to a different type of wire, which will allow several times to reduce the loss of electricity in the networks. An example of a low-cost measure is the installation of devices for automatically turning on and off the lighting of workshops and the territory of a CHP plant, depending on the illumination.
The measures are also evaluated in terms of the expected economic effect from their implementation. Obviously, at this stage, the assessment will not be very accurate. It is necessary to strive to ensure that the error is within 10% - this degree of accuracy at the first stage will be sufficient. From the formed list of activities, those are selected that will bring, according to preliminary estimates, the greatest economic effect.
5. Detailed study of activities as investment projects.
On the final stage the formation of a program of measures to reduce costs, the most promising of them are assessed using approximately the same methodology as any investment project. NPV (Net Present Value) is calculated for each event. The input stream is the amount of cost savings in the period, the output stream - the amount of costs for the project in the period. The event is included in the program if NPV> 0.
In the future, the cost reduction program is submitted to the top management of the enterprise, which makes the final decision on the implementation of the measures presented.
Let's give force to a binding document
The cost reduction program should be formalized as an internal regulatory and administrative document - this will emphasize its importance for the enterprise and give it the status of a mandatory act.
The structure of such a document should include the following sections:
- list of measures to reduce costs: short essence(name) of the event; the term of its implementation; the amount of costs for implementation; the economic effect of the event;
- explanatory note to the list of activities: data from the analysis of the enterprise; a brief justification for the choice of a particular event; model for calculating the economic efficiency of the event;
- an action plan of officials for the implementation of each activity (if such is not quite so elementary): detailed tasks; terms; those responsible for the event as a whole and for the implementation of individual tasks within its framework; resources required for execution - personnel, equipment, etc.
As an example, in table. 2 shows part of the list of measures to reduce costs for a food industry enterprise. The numbers in the table are arbitrary.
|
The essence of losses and their causes |
Loss reduction measures |
Implementation costs, thousand rubles |
Expected effect |
|
|
Description |
Thousand. rub / year |
|||
|
Equipment downtime for commercial reasons (up to 38% of equipment net operating time) leads to the fact that the company receives less revenue (and profit). |
1) Reduction of commercial downtime by improving work with buyers and customers - strict adherence to delivery schedules to ensure equitable loading of equipment. This requires: a) draw up sales plans, taking into account the uniform load of equipment and balances in warehouses; b) provide for in contracts with buyers penalties for late export or refusal of products and strictly monitor compliance with this clause; c) motivate sales managers to sell products in the first and second decades of the month. |
Absent |
Reducing commercial downtime by 1% (from 38% to 37% of net equipment uptime) will generate additional profit in the specified amount. | |
|
2) Reduction of commercial downtime by renting "buffer" warehouses for temporary placement of finished products. |
Reducing the level of commercial downtime by 1% will allow you to get additional profit in the specified amount (with a decrease in the level of downtime by less than 2% of the nominal, this method is economically inexpedient) | |||
|
Equipment downtime due to scheduled preventive maintenance (up to 11% of the net operating time of equipment) leads to the fact that the company receives less revenue (and profit). |
Reducing downtime for PPR by: 1) maintenance during the period of technological downtime (change of matrices, etc.); 2) rationalization of the schedule for carrying out PPR (transferring PPR for the time of minimum equipment load). |
Absent |
Reducing the level of downtime due to PM by 1% (from 17 to 16% of the nominal operating time of the equipment) will allow you to get additional profit in the specified amount. | |
|
Manufacturing defects of finished products |
Reducing the volume of manufacturing scrap by improving the management of the production process: 1) timely cleaning of production lines; 2) adherence to the order of the assortment without abrupt transitions of technological parameters; 3) elimination of re-grading in finished products. |
Absent |
Reducing the number of finished product rejects by 50% will save electricity spent on rejects processing during the year in the amount indicated (according to expert estimates). | |
Ensures implementation success
Each activity included in the cost reduction program will be unique in the sense that it is designed taking into account the conditions of a particular enterprise. Accordingly, the process of implementing such a program will also be unique. Therefore, it is almost impossible to offer universal recipes for success. Nevertheless, there are factors that largely determine the effectiveness of the program that need to be taken into account.
Let's call these "terms of success":
1. High-quality planning of a project to reduce costs, including a mandatory assessment of the economic efficiency of measures to reduce costs.
It is very important to assess in advance the economic effect of the measures and comprehensively analyze the data obtained. Particular attention should be paid to high-cost activities. Otherwise, there is a risk of spending certain resources without getting the desired result.
2. Integrity in the implementation of changes on the part of top management.
As you know, you cannot jump over a chasm by 99%. Once the changes have begun, it is extremely important to bring them to the end. Half-hearted solutions will only harm the enterprise.
3. Explaining the need to reduce costs, the benefits of steps taken to staff, and getting support from key employees.
Reducing costs is an unpopular measure, and therefore it is necessary to convey to the staff that "everyone is sailing in the same boat." Indeed, often the price of the issue is the existence of the enterprise itself. It is not machines and assemblies that work - people work, and the results of their activity significantly depend on their motivation.
4. Reliability of funding sources for activities, the implementation of which requires investment.
Here, perhaps, you can not comment too much - during the current financial crisis, everyone understands what interaction with unreliable financial sources can result in. On the other hand, the crisis, to put it mildly, is not the most the best time for large-scale reconstruction of production. Therefore, most likely, low-cost measures to reduce costs will be mainly implemented.
Successful implementation of the cost reduction program and the creation of a mechanism for regular cost optimization will allow the company to survive the crisis and get competitive advantages in a more stable environment.
Production costs firms represent the expenditure of factors of production in the creation of a product or service.
From the point of view of economists who are interested in the activities of the company, the possibility of its further development, this will be one answer, for accountants, who are mainly responsible for the financial statements and balance sheets of the company, it will be different. Thus, we came to the separation of economic and accounting costs.
The understanding of production costs by economists is based on the fact of the scarcity of resources and the possibility of their alternative use. The choice of certain resources for the production of one good means the impossibility of producing another alternative good. In other words, the costs in the economy are directly related to the rejection of the possibility of producing alternative goods and services.
Economic , or opportunity cost Is the cost of missing out on the best alternative use of resources.
For example, the opportunity cost of labor time that an entrepreneur sharpens may be equal, first, to the wages he gave up without selling his labor to another firm as a manager. It should be noted here that wage the watchman of a neighboring company will not be the alternative cost of our entrepreneur's working time, since the system of values and priorities that exists in this economic system... Secondly, it can be equal to the value that compensates for the free time that the entrepreneur donated.
Economic costs - payments that the firm is obliged to make, or the income that it is obliged to provide to the supplier of resources in order to divert them from use in alternative industries.
Accounting costs differ from economic in that they do not include the cost of services of factors of production, which are the property of the firm.
The distinction between economic and accounting costs becomes clearer if we introduce the concept of explicit (external) and implicit (implicit or internal) costs.
Explicit (external) costs - cash payments that the firm makes to suppliers of factors of production, in the event that the factors do not belong to it.
In number explicit costs include:
Workers' wages,
Manager salary,
Commission payments to trading firms,
Payments to banks and other financial service providers,
Legal advice fees,
Payment of transportation costs,
Depreciation of equipment,
Costs of raw materials and supplies, etc.
it accounting costs.
Implicit (implicit or internal) costs represent either the cost of factor services that are used but are not purchased, or the opportunity cost of using resources owned by the owner of the firm, which are received in exchange for explicit (cash) payments. These costs are not stipulated by contracts binding for explicit payments, therefore they remain unreceived. In addition, the firm uses the building it owns, but at the same time it gives up the possibility of receiving cash payments for renting the building to someone else. Firms usually do not reflect implicit costs in their financial statements, but they do not become less real from this.
The degree of difference between economic and accounting costs depends on the volume and types of resources provided to the company by its owners, as well as on the form of entrepreneurship. As a rule, large corporations pay wages to all employed people, even if they are co-owners of the firm. Thus, in corporations, implicit earnings are rarely accounted for. However, they invest heavily in equipment and land, resulting in an increase in the implicit (lost) percentage of investment and the implicit (neglected) development of rental recommendations in this area is one of the cornerstones.
Systematic cost reduction is the main means of increasing the profitability of a firm's operations. In a market economy, when financial support for unprofitable enterprises is an exception to the rule, but not the rule, as it was under the administrative-command system. Researching the problems of reducing production costs, the stones of the entire economic theory. ???
The following main directions of cost reduction in all spheres of the national economy:
using the achievements of scientific and technological progress;
improving the organization of production and labor;
state regulation of economic processes.
Before considering the direction of saving costs, we make one important remark. The fact is that the very activity of the company to ensure cost savings in the overwhelming majority of cases requires costs, labor, capital and finance. The costs of saving costs are then effective when the growth of the beneficial effect (in the most diverse forms) exceeds the costs of providing savings. Naturally, a boundary option is also possible, when a decrease in the cost of manufacturing a product does not change it. useful properties, but allows you to reduce the price in the competition. V modern conditions typical is not the preservation of consumer qualities, but savings on costs per unit of beneficial effect or other important characteristics for the consumer. In practice, this often takes forms such as reducing the unit cost of a machine tool. This process is most rapid in the production of electronic equipment, semiconductors and in a number of other industries.
The use of the achievements of scientific and technological progress is, on the one hand, in a more complete use of production capacities, raw materials and materials, including fuel and energy resources, and on the other, in the creation of new, more efficient machines, equipment, new technological processes.
The most characteristic feature of scientific and technological progress in the second half of the twentieth century is the transition to a fundamentally new technological method of production. Its advantage over the existing technological method of production is not only in higher economic efficiency, but also in the ability to produce qualitatively new material goods, new services that significantly change the entire way of life, priorities in life values.
As for improving the organization of production and labor, this process, along with saving on costs by reducing losses, in almost all cases provides an increase in labor productivity, i.e. saving the costs of living labor. At the current stage of economic development, the economy of living labor compared with the economy of social labor gives more significant results, as evidenced by the study of economic growth based on the use of the production function.
System lean manufacturing(lean manufacturing) originated in the bowels of the Toyota concern, and then became popular all over the world. It is based on a constant desire to reduce costs and unnecessary operations at different stages of product creation. Companies working on it encourage employees to come up with various improvements (kaizens) and spend work time as efficiently as possible. This approach to work is especially relevant when you need to cut costs. The Village asked a representative of the company, which has been working on the lean system since 2007, how it can be implemented in Russia.
Cost optimization
To start optimizing costs, you first need to understand where the costs come from. An accountant does not always detail expenses by item, and it is important for a manager to know this. When we started implementing the Japanese lean system in 2007, we held many meetings with specialists from our farms and divisions of the holding. To find out what the money is spent on, we talked with mid-level specialists throughout the year. This is one of lean principles: focus on production areas - people in the workplace know better. Many people initially did not like this kind of careful cost control, but we were able to tidy up the accounting. Heads of departments can now track how costs are generated and adjust them in real time, rather than waiting until the end of the month when calculations from the accounting department come.
Our mechanics are constantly thinking about how to improve the technique so that it will wear out less. For every idea that allows us to increase the life of machines, we pay employees a cash reward.
Several years ago we noticed that the premium milk is two or three rubles more expensive than the first grade milk at the same cost. We invited specialists to understand where we are losing in quality, introduced the position of a quality technologist. Over the year, the share of premium milk has grown from 26 to 60%.
In addition, we have begun to save electricity. We started small: we changed the light bulbs in the workshops to more economical ones. Our power engineers evaluated all the equipment and found out which units can be replaced, where a timer can be set, so that, for example, heating elements would heat water only during working hours, when it is needed. Last year, this brought us 12 million rubles in savings.
To find new ways to reduce costs, we periodically brainstorm in various areas of production. Top managers, regardless of specialization, go, for example, to the farm and during the day observe its work, draw conclusions, and then each group makes proposals, an optimization plan is developed. This helps a lot: people from the outside sometimes ask ridiculous questions, which are kind of brilliant.
Staff optimization
If a company needs to cut costs, there is no need to cut short life and fire employees right away. For a start, it is worth understanding what each of them is doing: perhaps one is underutilized, and the other is working hard. After all, you can retrain a person and transfer to another department, if he has the desire and ability.
If there is a need to carry out reductions, you should not do it unilaterally. In 2008, when the profitability of our farms was low, management decided to reduce the payroll or staff by 20%. We gathered the heads of departments and promised to leave half of the money saved through optimization to the team. When people saw that we were really giving back the promised funds, the process started. The director of one farm said he had 15 people to spare. The money saved was used to raise the salaries of the remaining employees - their motivation and efficiency increased.
Optimization of working time
We have developed teaching materials with step by step description each operation. As a result, people work without wasting time. Thanks to standardization, the milking process, for example, has been reduced by three hours. If earlier milkmaids worked from 6 am to 12 noon and were very tired, now they go home at 9 am. At the same time, they do the job better: there is more milk of the highest grade.
We moved away from the fact that the boss is an overseer, with us he became a technology controller, because all the work of employees is regulated. You will not see people loitering on a farm: people work harder, they are freed earlier, and in the end they get more.
We motivate people to learn about workflow technology. Every year it is certified. This affects wages: the best get first class and a 20 percent pay raise.
Result
Now we produce 51 thousand tons of milk per year, and in 2010 it was 27 thousand tons. At that time, the farm included 24 farms, but we carried out enlargement and optimization - there were 11 farms out of 1,200 workers, 650 remained, while the livestock increased from 11 thousand to 15 thousand heads. And if earlier the farms were unprofitable, then last year they brought 202 million rubles of net profit. The overall economic effect of implementation production system in all divisions of the holding exceeded 750 million rubles.
Reducing costs at the enterprise is a logical process in conditions of economic instability. How to do it correctly? Step by step about effective methods of reducing company costs - later in the article.
You will learn:
- What are the types and options for reducing costs
- How to plan and implement cost reduction activities
- What are the most effective ways to reduce costs in practice
- How material costs are reduced
- What are the benefits of reducing transport costs
- How cost reduction strategies are chosen
- What are the basic principles of costs to consider
Classification of costs in the enterprise
Effective and ineffective. Possible effective costs (refer to income generation through the sale of products for the manufacture of which were allocated) or ineffective (refer to tasks that are not related to income generation, imply losses). Among the ineffective expenses, there are any types of losses - due to marriage, theft, downtime, shortage, damage, etc. Therefore, it is necessary to focus on reducing the amount of ineffective expenses. Therefore, it is necessary to establish the permissible technological costs, determining the responsibility for violation of permissible norms.
Another area of cost reduction is the analysis of the effectiveness of auxiliary work with the involvement of outsourcing companies in some areas. Engaging third-party performers on a competitive basis is a real and effective option to reduce the costs of medium and large organizations. Although it is sometimes more profitable to maintain your own divisions in comparison with attracting third-party organizations, this situation is no longer considered the rule, but the exception.
Relevant and irrelevant. Any manager needs to control whether control and planning depend on his management decisions. If they depend, then such expenses are relevant, and otherwise they will be irrelevant. In particular, expenses in the past are irrelevant, since the CEO can no longer influence them with his decisions. And opportunity costs are among the relevant ones, so management should pay special attention to them.
Constants and Variables. Possible variable, fixed or mixed costs - depends on the level of production. Variable costs are directly proportional to the level of production, without affecting constant production volumes, mixed costs contain both constant and variable parts. This division provides cost optimization - an especially important prerequisite for controlling fixed costs.
Direct and indirect. Possible direct or indirect costs depending on the method of attribution to the cost of production. Direct costs can be attributed to a specific product or service. In this category, the costs for the acquisition of raw materials, materials, wages of production workers are noted.
Indirect costs are not directly related to a specific type of product. Indirect costs include the costs of managing and maintaining departments to manage and maintain the enterprise as a whole. If an enterprise is engaged in the production of only one product, then all costs for its manufacture and sale will be direct.
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How to start reducing costs in the enterprise
The first step is to classify expenses into clearly defined categories.
The second step is to determine what costs are subject to adjustments.
The third step is planning and cutting costs.
6 ways to reduce costs
1. Reducing labor costs
According to the provisions of the current domestic legislation, it is allowed for companies to reduce both the number of employees and wages.
2. Reducing the cost of materials and raw materials. To reduce the cost of purchasing materials and raw materials, the following enterprise steps can be taken.
- revision of the terms of contracts with existing suppliers;
- search for new suppliers;
- use of less expensive components whenever possible;
- helping suppliers to reduce their costs;
- procurement of materials together with another buyer from one supplier;
- independent production necessary materials;
- introduction of resource-saving technological processes that contribute to saving on the cost of raw materials;
- giving priority to the procurement process of materials and raw materials;
3. Reducing production costs. Consider questions that can be applied in assessing the effectiveness of efforts to reduce costs:
1) Rent payments:
- Is it possible for the company to revise the terms of the current lease agreement?
- is it possible to move to another room or building?
- Is it possible to sublease a part of the occupied area of the company?
- Could the company be more profitable to buy out the leased premises?
2) Utility bills:
- Is it possible in the company to have stricter control over the consumption of energy resources?
- Does the company have the ability to implement more cost-effective processes?
- is it possible to switch to new conditions for payment of utility tariffs?
3) Repair and maintenance of equipment:
- Is it possible to postpone certain work for a long or short time as part of the current equipment maintenance?
- Could it be more profitable for the company to refuse the services of contractors, taking up the repair of equipment on its own. Or will it be cheaper to hire a specialized organization if the company itself is engaged in the current maintenance?
- can the company come to an agreement with current contractors to improve the terms of the equipment maintenance agreement in its favor?
- is it possible to search for new suppliers service For the company?
4) Integration and disintegration
- Is it possible to reduce the company's costs through vertical integration with suppliers or customers, or through horizontal integration with other manufacturers?
- Is it possible to reduce the company's costs by expanding the scope of its business to other parts of the production cycle, with the refusal to work with subcontractors? Or will it be more profitable to narrow the production area, to part of the production cycle, or to carry out ancillary work, yielding to another manufacturer?
5) Transport:
- is it possible to limit the number of service vehicles?
- Could the option of outsourcing a trucking company to the functions of a trucking department be considered?
- wouldn't it be easier to attract a logistics company (or a professional logistician) for the purpose of consulting on reducing transport costs?
- How to optimize business expenses: instructions for the manager
- is there any data that confirms - the compatibility of the growth of advertising spending with an increase in sales.
5. Additional measures to reduce costs. Is it possible to reduce the company's costs in the following areas:
- conducting experimental design and research work;
- maintaining a wide range of products;
- maintaining a certain quality of services provided;
- maintaining a wide range of its clients;
- mechanization of the production process;
- raising the level of qualifications of personnel;
- careful selection of components and raw materials that meet certain technical parameters;
- speed of order fulfillment;
- organization of production;
- maintaining the flexibility of the production process;
- maintaining the existing policy on maintenance of machinery and equipment;
- support for distribution channels of manufactured products.
6. Government support. Is it possible for the company to benefit from a specific government program to support entrepreneurship by doing the following:
- lobbying for the adoption of relevant federal and local legislation;
- receiving subsidies and benefits.
- Attraction of borrowed funds: how to accelerate the formation of the company's financial funds
What are other ways to reduce costs
1. Decrease tax costs:
- conclude an agreement with the individual entrepreneur.
- to conclude contracts with a legal entity. by persons.
- to organize a holding structure operating under a simplified taxation system.
- transfer management functions to a separate legal entity. face.
2. Reducing the cost of maintaining unused property:
- to sell the materials that were formed during the dismantling process;
- not to write off, but to sell the depreciated fixed assets.
3. Innovative cost reduction:
- introduction of more economical equipment and technologies.
- to develop low-cost production.
4. Decrease in expenses related to depreciation:
- transfer the property to the repeated application of the amortization of the premium. The company has the right to write off up to 10% of the initial price of the fixed asset at a time in the expenses of the current reporting period.
- to reduce the period of use of the object by the time during which it was used by the previous owner for the purpose of calculating depreciation.
- proof of the repair nature of the work instead of modernization and reconstruction;
- recognition of the redemption value of the leased property as an expense, if the object is registered with the lessor.
5. Debt handling:
- implementation in any cases of measures to collect debts.
4 methods to reduce logistics costs
Revision of the work of the logistics service. The logistics of the enterprise is based on the principle of "it happened", and not according to a pre-established plan. But even when organizing this work on the basis of a plan, according to experts, a quarterly revision of the main functions in the department is necessary to determine whether any of them have lost their relevance.
Practice confirms that thanks to this revision, many points of waste of time and money for the company can be identified.
Thanks to the audit, the logistics succeed critically. In particular, the staff of one company included several specialists who translated the same type of invoices for customs and banks. Based on the results of consultations with the broker and the bank, a glossary of frequently used words was handed over to customs, with the preparation of certain templates for translation, which made it possible to part with the translators.
If you organize a logistics system in a company with a clear structure, understandable KPIs and control, these measures will allow you to get an immediate noticeable effect. Further, it is necessary to deal with already optimization of individual functions of the enterprise.
Inventory Management. It is necessary to calculate the required stock of warehouse stocks, the minimum safety stock, the volume of products that are in transit, with the development of delivery schedules and payment of invoices. This will significantly reduce associated costs.
Transportation planning. First of all, in order to reduce logistics costs, it is necessary to ensure the reliability of transportation in terms of timing and safety of the cargo. Thanks to this, the transport can be used as a warehouse on wheels, with a significant reduction in overall storage costs.
In order to reduce transportation costs, it is important not so much to demand discounts from carriers, but to properly plan for reducing costs. It is noteworthy that the most effective option for reducing transport costs is loading in 2 years. On the 2nd place in terms of efficiency - to maintain the stability of the downloads according to the schedule.
Choosing the right logistics service provider. In that matter, you need to critically approach the "old attachments", conducting a constant study of the available services and prices.
When summing up, it can be noted that in order to optimize logistics and reduce the corresponding costs, the main condition becomes systems approach... In a company in which a holistic system can be established, accustoming employees to constantly drawing up plans, making decisions based on calculations, and not traditions, there is a daily improvement of processes, and periodic audits involve only making minor adjustments, contributing to the achievement of success for the company. Experts from the School of the General Director will tell you more about accounting and cost sharing at.
First of all, you need to start with the optimization of the logistics department
Maria Isakova,
logistics expert, Moscow
Companies in most cases seek to optimize the part of the logistics that is managed by counterparties. Often, at the same time, they begin such an optimization with the transport component, negotiating with carriers and forwarders to reduce prices. But it can be clearly stated that it is impossible to achieve lower prices from carriers every time, and the effect of such a decrease is diminishing. To ensure maximum results, the beginning of the policy of reducing logistics costs should be the optimization of the logistics department.
Indicative cost reduction plan
Planning to reduce costs involves a set of activities, divided by time:
- Compliance with financial discipline. Measures are being formed to ensure compliance with financial discipline. In particular, a plan is being developed, with strict adherence to the approved data. The decisions that were made by the head and were fixed in the budget can be violated only in exceptional cases.
- Organization of accounting. To systematically reduce the costs of the enterprise, it is necessary to introduce a system of financial accounting and control. Not only costs are subject to accounting, but also the income of the enterprise. It is necessary to carry out operational measures aimed at recovering the debt. Also, the enterprise itself needs to promptly make budget payments, and payments for personnel and contractors, which avoids penalties.
- Development and implementation of a plan to reduce costs. The goals of the cost reduction program are to provide the most detailed target values of the cost items to be reduced. As part of these activities, it is planned to develop a plan for the entire enterprise with the identification of weaknesses where it is possible to reduce costs, and for each structural unit - to strengthen financial discipline in the field.
- Conducting inspections. To assess the effectiveness of cost reduction, it is necessary to constantly conduct independent monitoring, which will allow assessing natural loss, possible shortages, technological losses, with the necessary adjustments to the plan to reduce the corresponding costs.
- Loss analysis. Any result, including a negative one, must be carefully checked to reduce further costs. It is necessary to analyze production losses that force the sale of products (services) at reduced prices. Defects, alterations and rejects also deserve special attention. This not only leads to a reduction in the cost of production, but also to additional costs. Interruptions in production, waiting for products can also increase costs.
What problems can arise during cost reduction
- It is difficult to identify the most important cost items that need to be reduced. These errors are typical for medium and small enterprises, because usually their management is well informed about the most significant expenses. But companies, as their business expands and becomes more complex, may face a situation where management may not notice an increase in spending in certain areas.
- Incorrectly identified the source of the enterprise's costs.
- Together with unnecessary costs lost their individuality, as a result of which the competitiveness of the products, especially if its distinguishing feature was quality.
- Seriously spoiled the relationship with the parties involved in the business
- Reduced costs in critical areas below the acceptable limit.
- Lack of understanding of the cost mechanism of the enterprise.
Lack of motivation
Konstantin Fedorov,
Development Director, PAKK, Moscow
When implementing cost optimization, enterprises usually use administrative leverage according to the principle "if you do not cut costs, we will fire". Because of this, a situation arises when ordinary employees and managers of the company begin to sabotage changes either explicitly or openly. Moreover, many consider optimization a sign of weakness in their leadership.
Advice. It should be agreed in advance how the company will thank all participants in the cost reduction program after its implementation. At the same time, this gratitude does not have to be financial. In particular, you can think about career advancement or other options.
- Keep track of costs and there will be fewer. Sometimes cost reduction can be achieved simply by accounting and understanding them.
- Your employees are like-minded people. The importance of cutting costs should be communicated to your employees. They need to be told that they value their cost-saving offerings.
- Break down your costs based on the degree of production dependency. Accounting systems are mostly subdivided into variable and fixed. Variable costs (direct labor costs, raw materials, etc.) depend directly on the volume of production. Fixed costs (travel expenses, salaries for management personnel, bills for water, heat and power supply, etc.) usually do not depend on production volumes. Some companies have adopted a classification of variable costs depending on the ease with which they can be adjusted when production activity changes.
- Divide costs according to how easily they can be adjusted using alternative solutions.
- Keep track of not only the cost structure, but also the causes. Thanks to this, it is possible to take the necessary measures aimed at eliminating the causes of undesirable increases in costs.
Cost planning and control - from prices to energy consumption
Walter Borie Almo,
General Director of the Ufa meat-packing plant
Our planning and finance department processes all available information to plan and control costs - from ingredient prices to equipment performance and energy consumption. Continuous analysis is the basis for further cost savings. We divide the costs in our work into 2 categories - for some, significant investments are required, in the case of others, simple procedures will be enough. Don't give up on simple solutions that can help you achieve tangible results at the lowest cost.
To analyze the results, we use the KPI system of key performance indicators. The data are compared with the results of five companies in our holding. It is not always possible to achieve results thanks to this information, because we are leading in many indicators. Therefore, the collection is carried out on our competitors.
We also involve employees in our work to reduce costs. For any employee, thanks to whose idea it was possible to provide a tangible economic effect, a bonus of 3 thousand rubles is allocated.
Information about the author and company
Maria Isakova, logistics expert, Moscow. She started her career as a logistician at Bayer. In 2001-2008, he was the head of the logistics department, since 2009, the head of the logistics and order management department at Lanxess.
Walter Borie Almo, General Director of the Ufa meat-packing plant. OJSC "Ufa meat-packing plant" is one of the leading enterprises of the meat-processing industry in the Republic of Bashkortostan. It produces more than 150 types of food and technical products, as well as raw materials for the leather and medical industries.
Zoya Strelkova, leading financial analyst, head of the company economics direction of the Training Institute - ARB Pro group of companies, Moscow. He specializes in researching the economic state of companies, developing economic business models, strategic planning and other issues. She has participated in the implementation of more than 20 strategic planning projects for enterprises in various industries. Conducts seminars “Strategic everyday life. PIL-approach ”and“ Finance for managers. ”“ Training Institute - ARB Pro ”. Field of activity: business training, HR consulting, strategic management, information support of business. Form of organization: group of companies. Territory: head office - in St. Petersburg; representative offices - in Moscow, Nizhny Novgorod, Chelyabinsk. Staff: 70. Main clients: Moscow Financial and Industrial Academy, Sberbank of Russia, Gazprom, Irkutskenergo, Svyaznoy, Ecookna, Coca-Cola, Danone, Nestle2.
Konstantin Fedorov, Development Director of the PAKK company, Moscow. PAKK CJSC. Business profile: consulting services, professional business development assistance. Number of personnel: 64. Average annual turnover: about 110 million rubles. Completed projects: more than 1000.