“Smart companies know the difference between costs, expenses, and investment. Smart management sees costs as money eaters. They see investments as money makers. They see expenses as nice but the first to go in tough times,” says Jeffrey Fox in his book How to Be a Fierce Competitor. Where does a building product manufacturer cut costs and where do they increase investments? Let’s examine a few recommendations-

Building Product Manufacturer Costs and Expenses

Typically, a manufacturer has to pay facility costs, rent, taxes, energy, internet services, etc. Manufacturers can reduce costs, but they can’t completely eliminate costs or they would go out of business. Expenses are items like a lead generating service (Dodge, Reed, etc.), Friday lunch for employees, trade magazine subscriptions, etc. However, manufacturers can eliminate many expenses.

Building Product Manufacturer Investments

An investment is research and development into a new product line. Investments could also be training employees about LEED v4, market research, AIA online courses, patent filings, recruiting new employees, and product samples. Investments that improve the manufacturing process, reduce quality issues, and include employee training are worthwhile investments.

Where to Cut Costs

Fox recommends that companies don’t implement false savings. Building product manufacturers should never sacrifice quality to save money. Purchasing lower quality and cheaper components to build an assembly will only fail in the end. Lower quality products and cheap knock-offs will lose customers and ultimately reduce revenue for a manufacturer.

Manufacturers often purchase ingredients from Tier 1 and Tier 2 suppliers. Negotiating with various suppliers in the global market can be a frustrating experience. Handing out bonuses to employees who procure ingredients from the cheapest suppliers could harm a company in the end. Fox recommends that companies look for clues that signal bad costs and waste in a company. Here are a few to review:

• Customer complaints
• Chronic late deliveries
• Chronic partial fills on orders shipped
• Sales people using selling time for email, paperwork, and non-selling activities
• Glacial decision making
• Warranty claims
• Product recalls
• Employee base growing faster than sales revenue per employee

Conclusion

The best product manufacturers identify waste in their company and eliminate it. They don’t point fingers, they don’t conduct endless meetings, they quickly address the issues at hand and solve the problem. As Fox says, “rip out costs, purge waste and inefficiency, and use the savings to develop and launch a new product.” How does your company determine what to cut and invest in? What are the major obstacles in your company preventing you from making positive decisions?