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Cost management | business


Plastics business management expert Dr Robin Kent, author of “Cost Management in Plastics Processing”, discusses the critical difference between cost management and cost cutting and the inexplicable focus on labour content


Don’t labour over managing costs


Cost management is a vital subject for everybody in the plastics processing industry but many people confuse cost management with cost cutting - they are not the same thing. Cost cutting will not make your company a world


leader or even an also-ran; it will eventually destroy your business. Too many companies have carried out crude cost cutting without any real attempt at managing the process. The results are frequently tragic for the staff, the company and eventually for the management who embarked on the cost cutting process. This confusion is primarily due to a continuing


fascination with the cost of labour. Ask yourself:  Why do we think that if we want to reduce costs then we must start with direct labour costs?


 Why do we have Human Resources Departments and Purchasing Departments but ignore any attempt at Overhead Management or Energy Management?


 Why do we get upset if we see an idle worker and yet unthinkingly accept unrealistic overhead allocations and/or walk past machines that are running but not producing any product?


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 Why do we justify machinery purchases on the labour we save and yet rarely analyse how much labour we actually have saved?


 Why do managers know exactly how many staff they control and how much material they have used but not know how much capital equipment they control, how much energy they use or how much of the overheads they control?


 Why do we think: ‘Overheads are part of the business. They are central, unmanageable and unavoidable’ and then ignore them or assume they are somebody else’s problem? We should ask ourselves: Are we really serious about managing costs or are we just playing at it? Trying to manage what we don’t understand is a recipe for failure and is one of the reasons that cost cutting programmes fail and risking bringing the company down with them. Realistic cost management is not achieved by ignoring large costs (such as overheads) but is achieved by understanding what we are really doing. It is not simply about low labour cost, but about reducing all the costs and taking effective action to survive in an


January/February 2013 | INJECTION WORLD 13


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