Create cost competitive advantage

On July 12, 2021, at the regular meeting of managers on Monday, Mr. Wang Fenghua, the general manager, elaborated that management cadres should be cost conscious and create cost competitive advantages for the enterprise.

The American economist Porter put forward the strategy of total cost leadership, that is, cost leadership requires firmly to establish production facilities of high efficiency and scale, to go all out to reduce costs on the basis of experience, to pay close attention to the control of costs and administrative expenses, and to minimize the cost of other projects. So how do we create cost competitive advantage?

First, raise cost consciousness

The transfer of glasses manufacturing industry chain has experienced from the United States, Europe, Japan, South Korea, Taiwan, Hong Kong, mainland China, Southeast Asia, such as Vietnam, Bangladesh and other countries. It is not difficult to see from the glasses manufacturing industry chain transfer road map that the glasses manufacturing industry chain is shifting from the high-cost region to the low-cost region, that is to say, the main line of cost drives the regional transfer of the industry chain. Our company's competitive strategy is to provide customers with the most cost-effective products, neither excessive pursuit of high quality products, nor involved in inferior low cost vicious competition. In order to carry out this competitive strategy, we need to improve the cost awareness of all colleagues in Ouhai. As early as 2004, the company put forward the policy of "stable, accurate and provincial". Simply speaking, "stable" means that the quality should be stable, "accurate" means that the delivery time should be accurate, and "provincial" means that the cost should be saved. The company's senior management has always advocated thrift, but also because in the daily business activities throughout the "cost to save" this main line, so that the company based on the glasses industry and not be eliminated, not like some of the peer enterprises because of the pursuit of high and high and from strong to weak, so that Ouhai in the development of growth, in the steady forward. However, some of our young management cadres are not in charge of the family, do not know the cost of fuel, rice, oil and salt, did not pass down this fine tradition. In 2021, the company is also faced with huge cost pressure, such as depreciation of exchange rate, rising raw material costs, increasing wage costs, and the average unit price of products decreased due to price reduction by customers. Ouhai has no independent brand, no comprehensive strength like Hua Hong has pricing power for products, we are a manufacturing enterprise, manufacturing industry belongs to the bottom of the industry chain, the profit margin is very limited. If we do not do a good job of cost control, it will be difficult to achieve the profit target, or even loss. Ouhai is an enterprise with mission, vision and pursuit, we hope that every employee working in Ouhai will have a better working environment and better living welfare, so the company has installed central air conditioning in all workshops of the new industrial park, and planned places such as gym and kindergarten for employees in the living area. However, in order to achieve the mission and vision of the company and make people's lives better, the precondition is to make the company profitable. The best vision, the best idea, and the best culture are just castles in the air if you can't achieve profitability.

Second, establishment of cost control mechanism

1, subdivide subjects. To control costs, the company asked the finance department according to the annual budget of each department, each department, each shift the cost of segmentation, including the cost of materials, wage costs, material costs, management fees, rent, machinery depreciation, abnormal loss such as subjects, and in light of the annual budget, set up corresponding cost targets, Let all levels of management cadres with goals to implement cost control measures and engaged in management activities.

2. Regular physical examination. The company requires the Finance Department and the Information Department to improve the data management system and ensure the freshness of data. We should shorten the actual achievement of the cost budget from a monthly cycle to a week, to a day or even to a shift. Data management should be timely collection, timely analysis, timely judgment and quick decision. When a certain cost exceeds the standard, the system will automatically send out an early warning message to the head of the business division, department or team. For example, in the aspect of auxiliary material cost control, we should learn the bank's management method of personal credit card or deposit card. When the auxiliary material cost exceeds the standard, the system will limit the amount of materials or establish a certain proportion of credit line for the production unit. At the same time, the finance department should implement the transformation from bookkeeping finance to management finance, investigate the causes of excessive costs on the spot, and help the relevant departments to formulate corresponding improvement measures.

3. Continuous optimization. Cost structure is a dynamic process, which cannot be measured by a fixed value, and it needs continuous optimization in management activities. For example, the increase in administrative expenses, the change in financial expenses, the rise in the price of materials, the rise in labor costs, the change in customer demand and other factors will affect the change in the proportion of the cost, at this time we need to do this in the management activities. So how do you get this up and that down? Take material price increase as an example, The company asked the finance department to conduct a comprehensive historical data analysis on the usage of all materials, and negotiate with suppliers for large quantities of materials purchased. At the same time, several suppliers should be found for the same material to compare the price, and the parts and materials with higher cost performance can be changed according to the supplier change process. For another example, every year, the company will raise the salary of employees according to the external environment, the performance of employees and other factors. If the salary increase of employees is not changed, it will lead to the increase of salary cost. At this time, the Human Resources Department needs to lead the implementation of this increase and decrease plan. For example, the personnel structure should be optimized by strengthening the army and streamlining administration, and the personnel efficiency should be improved by upgrading machinery and technology.

4. Ensure profitability. The company requires that before the monthly production plan is sent to the production workshop, the logistics department should send the monthly plan to the financial department for accounting. The purpose of accounting is to achieve the annual budget and profit target from the source. Make sure every division, department and shift is profitable. At the same time for a single shelf, a single order or a single customer to calculate whether it can be profitable.

To create cost competitive advantage, on the one hand, it is to improve the cost awareness of management cadres and employees, so that they can understand the current situation of the company, and the main line of "cost saving" is integrated into the daily operation of the enterprise. On the other hand, a corresponding cost control mechanism should be established to ensure the profitability of the enterprise and create a cost competitive advantage through management activities such as subdividing subjects and setting budget objectives, regular physical examination and early warning, and the implementation of such plans.