Is your cost management out of control?

Is your cost management out of control?

Spiralling costs has become a reality for many businesses in 2023, so how can manufacturers keep their heads above water?

According to a recent report, nearly half (45%) of business owners are worried that they may need to close their business due to rising energy costs. The survey of 500 UK business owners by financial comparison site NerdWallet, also found that only 11% of businesses said they could cope with the rising costs.

More than a quarter (28%) of businesses admitted they had banned staff from charging their phones and other devices at work to conserve energy. Worryingly, 25% of bosses had cut staff numbers due to higher energy bills.

In this climate the issue of cost management, reducing costs has become a business critical strategy across manufacturing and other sectors.

So where do you begin?

“If manufacturers don’t have their own procurement team, or a team that lacks depth of expertise, it’s difficult to put strategic cost management into action,” says Martin John. With 25 years’ experience in senior procurement, relationship management and supply chain roles, Martin John now helps business owners to implement best procurement practices.

“If you just arbitrarily cut spending (like Elon Musk did when he bought Twitter), there’s a real risk that you might impact the motivation of your people, your ability to serve your customers, or jeopardise relationships with suppliers on whose goods and services your business depends.”

Rising energy bills are not the only problem, businesses are also having to battle inflation which is pushing up the prices of raw materials.

Martin adds: “Manufacturers typically spend between 60% and 80% of their revenues with third-party suppliers. These companies are trusted with the task of providing the goods and services required so the manufacturer has something to sell.

Over time, manufacturers will develop long-standing relationships with third party suppliers. However, every supplier is pursuing their own commercial aims, meaning the manufacturer may not be getting the best possible deal.

Management Trainer and Procurement Expert Martin John

Manufacturers have to tread the tightrope of maintaining supply, while keeping a lid on raw material inflation and cutting through any opportunistic pricing behaviour from suppliers. For example, some supermarkets have been accused of profiteering by passing on price increases that are over and above the actual inflation costs they are experiencing.

According to Martin, businesses can take positive action: “The good news is that there are at least 16 techniques, that consider both demand-side management and supply-side management, that a company can use to not only manage cost, but to reduce cost, too.

“These techniques include specification management, value engineering, should-cost analysis and tendering.

“Demand-side cost management is something that can be managed entirely internally within the manufacturers organisation, meaning that you can get the benefits of cost reduction without incurring any risk to supply.

“Supply-side management requires companies to engage with their suppliers to secure cost benefits, but again, there are ways and means of doing this without harming your relationship or running the risk of a supply interruption.

“There is also a ‘must-do’ step-by-step process for handling price increase requests without jeopardising your supplier relationships.”

During his career in procurement, Martin dealt with many of the same challenges that manufacturers are facing today. He now trains companies in techniques to bring costs under control, and increase profitability.

For more information, contact Martin