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Download the how-to guide: Making time for operations improvement to find out how to make continuous improvement part of your organizational DNA.

How will manufacturers benefit if they reduce costs?

As explained by Gartner, cost reduction is the process of decreasing a company’s expenses to maximize profits. But the benefits don’t end at improved financial performance. Reducing costs will also give companies a competitive advantage in the following ways:


Improved resilience

A business with low production costs will be more resilient in uncertain economic times. Lower production costs enable a business to be more flexible and maintain competitive pricing despite raw material price and demand fluctuations.


Improved cash flow

Reduced operational expenses can positively impact cash flow, which means that your business will have more funds available for day-to-day needs as well as growth projects – like site expansions or new product lines.


Increased customer satisfaction and sales

Lower production costs will enable your business to offer its products at a lower price to customers, making your products more attractive to a broader audience. Reducing costs will also provide you with more disposable income, which can be invested in quality improvements and customer service enhancements, leading to higher overall customer satisfaction.

How can chemicals manufacturers reduce costs?

When advising our clients on cost reductions, we always consider various aspects. However, in the chemicals industry, we have found the following two strategies to work well.


Reduce reprocessing

In the chemicals industry, one of the most successful ways to cut costs is to reduce reprocessing. Reprocessing refers to the repetition of one or more process steps in an attempt to salvage products that did not meet the required quality standards after initial processing.

Reprocessing is wasteful and expensive, and minimizing its prevalence provides a prime opportunity for manufacturers to reduce costs.

To reduce reprocessing and subsequently lower your production costs, interrogate your manufacturing process to determine where quality issues or defects are creeping in. Some of the most common causes of reprocessing include:

  • Human errors and mistakes made by workers during the manufacturing process
  • The use of inconsistent or poor-quality raw materials
  • Equipment malfunctioning or breaking down, leading to defective products being produced

A lack of quality control throughout the production process


Increase efficiency and throughput

Increased efficiency enables a business to achieve a higher level of output with fewer resources, leading to reduced unit costs – as overhead costs are distributed across more products.

Other significant costs you can reduce by focusing on efficiency and throughput include:

  • Labor costs: To achieve a higher throughput, the efficiency of your workforce will have to increase as well, leading to lower labor costs per unit produced
  • Energy costs: Optimizing your production process to use electricity more efficiently can bring energy costs down significantly, without compromising on product volumes or quality
  • Shipping costs: By increasing throughput your company will be able to meet customer demands more easily, thus eliminating the need for rush orders and expedited shipping and the costs associated with this
  • Inventory costs: Increased throughput means you will be able to produce products faster, reducing the need for excess inventory and subsequently lowering storage and holding costs

To increase your operational efficiency, you need to embrace modern technologies and automation tools aimed at improving productivity, accuracy and speed, and focus on streamlining your production process.

To streamline your processes, analyze existing workflows to identify bottlenecks, redundancies and unnecessary steps. Then implement measures to eliminate waste and optimize the flow. A good place to start to identify potential areas for improvement is to conduct a loss and waste analysis – a lean process for analyzing the key performance areas delivering competitiveness in the value chain, and then quantifying and prioritizing the scale of improvement opportunities. 

Operational excellence leaders generally have a toolkit of lean tools at their disposal to drive improvement projects and effect change. Despite this, many improvement efforts fail – usually because the root cause of the issue, which often relates to employee skills and behaviors, is not adequately addressed, or because the wrong lean tool is used.

How to ensure the success of your cost reduction initiative

To effectively reduce costs and sustain your improvements focus on the following four aspects:


Use the right tools for the job

Having a toolkit of lean tools to choose from is useful, but you also need agility to choose the best tool for each scenario, rather than being forced to apply the same lean tool across various sites and functions.

This is often where companies go wrong. For example, value stream mapping is a great tool to get people working together across an entire facility or the extended supply chain. But some companies also apply it in a continuous process plant environment – where process mapping can achieve the same outcome in a much simpler way.

Manufacturers need to take a step back and make sure the tools they choose are the best option for each specific scenario. Before deciding on a continuous improvement tool to use consider the nature of the process you are optimizing, the goals of your project and the stakeholders involved. Then use this information to assess the potential impact of the lean tools at your disposal to ensure you choose the best one for your specific scenario.


Build a supportive organizational culture

Once you have picked your improvement project and chosen which lean tools to use to execute it, you need to secure organizational buy-in for your choice.

To secure buy-in, follow these steps:

  • Communicate clearly: Clearly articulate the purpose of the improvement project, how it will benefit the organization and why you recommend the specific lean tool you have chosen
  • Engage stakeholders: Don’t just tell the business what to do, involve them in the process – from planning through to execution – to encourage ownership and commitment
  • Address concerns: Acknowledge and address your employees’ concerns and share success stories from other applications of your chosen tool to build confidence in your plan

Importantly, you also need to give your staff the necessary support to use the tool successfully – coaching and problem-solving skills are needed at all levels of the organization.


Keep an eye on available skills over time

If your KPIs are slipping and you are struggling to maintain your gains, look at the skills of your staff. Skills degradation naturally occurs over time as people move on or get promoted to more senior roles.

To prevent skills degradation and sustain the new processes and improvements that were put in place, focus on the following key aspects:

  • Create a continuous learning culture: Foster a culture of continuous learning and skills development to help employees grow and stay up to date with the latest developments. Offer regular training opportunities and give employees access to resources that enable them to learn on an ongoing basis
  • Encourage cross-training and mentorship: Cross-training, job rotation and mentorship programs are a great way to build employees’ skills, enabling them to take on new roles more easily
  • Provide regular feedback: Regular performance reviews will help you spot skills degradation issues before they start impacting your KPIs. Once issues are identified, work with the relevant employees to create skills development and training plans to address any gaps

Continuously communicate the need to improve

Continuous improvement (CI) efforts often start out strong with vast amounts of internal communication but as time goes by, leadership communicates less frequently.

To sustain gains, leadership should continuously remind the organization that the CI process is still a priority. Building a continuous improvement mindset into the daily way of work for the organization is critical for sustained success.

Here are a few ways you can keep the improvement conversation going:

  • Provide regular updates on the progress of your improvement initiative. By keeping employees informed about any milestones or KPI targets they have achieved, you will keep them engaged and motivated
  • Use visual management aids – such as real-time charts and graphs – to keep the project top-of-mind when employees are on the shop floor
  • Share success stories and learnings to keep the improvement vision alive
  • Periodically revisit improvement goals and targets, and communicate any adjustments or refinements

Reduce costs and sustain improvements

Remaining competitive in the current economic climate – characterized by high costs, raw material availability constraints and demand uncertainty – is possible if you actively work to reduce costs and sustain your improvements, using a continuous improvement approach.

To achieve success, make sure you choose the right tools for the job, build a supportive organizational culture, keep an eye on your employees’ skills, and remember to continuously communicate around the need to improve to keep your project top of mind.

Contact us to find out how we can help you improve your operational efficiency to reduce costs and build your competitive advantage.

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