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Becoming the “nimble organization”

Identifying cost controls and process improvements through due

MANUFACTURING INSIGHTS  | 

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Margin management remains a top priority for all manufacturers and distributors due to expected increases in manufacturing costs as well as the challenge of utilizing meaningful sales price increases in a volatile business environment. With margins already stretched to the breaking point, it can be difficult to dedicate resources for initiatives to reduce expenditures when such projects aren’t viewed as mission critical or don’t present immediate results.  

According to the 2013 McGladrey Manufacturing & Distribution Monitor survey, a rising majority of industry executives anticipate increases across all major cost categories in the next 12 months.  Inventory, materials and component costs are expected to rise by an average of 4.5 percent; transportation and fuel by an average of 6 percent. Nevertheless, one large, international equipment manufacturer reviewed its $66 million spend and was able to identify nearly $7 million in total savings.

The analysis resulted in more than just lower expenditures, significant as they were.  The lower a company’s fixed costs – its break-even point – the more agile it can be in good times and downturns.  With the appropriate balance of in-house solutions and outsourced operations, the “nimble organization” can adjust its business model and quickly respond to market shifts. 

During the recession, many businesses delayed investing in their operations, thinking that it was a way to control costs and conserve cash. But now executives are admitting that some spending can no longer wait; most anticipate capital-expenditure increases in information technology, infrastructure, equipment, research and development, and other functions.

With proper due diligence, analysis and review, organizations can identify where and how money for various functions is being spent from year to year and, as a result, assess opportunities for cost savings.