Topic 3
Reduction Cost of Production and Service
1. Concept in Reducing and Controlling the Cost of Production
Concept in Reducing and Controlling the Cost of Production
To sustainably run a business, it is necessary for the entrepreneur or business owner to find a way to reduce the cost of production and services. The concept in reducing cost of production is shown below.
1. Analyze and examine the current status of production which includes labor, raw material, and cost of production, in order to find the shortcoming and the method to reduce cost.
2. Find the route cost that creates wastes in production and services. Wastes refer to things that incur cost but give no benefit to the business.
3. Continuously reduce and control the cost of production that is unnecessary or creates wastes until achieving the target.
In running a business, one might face a different shortcoming which may obstruct the business or cause a higher cost of production. This limitation may occur from various factors such as higher cost of labor, higher cost of raw imported materials, increasing in the price of gasoline, water, and electricity, more competitors or higher degree of competition. Therefore, it is necessary for the entrepreneur or business owner to reduce the cost per unit of production which the result is to gain a higher profit. Moreover, the entrepreneur will also have to adjust the target of production to a suitable level and improve the business structure, as well as developing a promotional campaign which is the key to success.
2. Factors in Reducing and Controlling Cost of Production
Factors in Reducing and Controlling Cost of Production
In reducing the production cost, the following factors should be taken into consideration.
1. The executive must initiate clear policies and projects to reduce the production cost. This may include international quality standard policies such as ISO, Personnel Capability Development, and etc. or other cost reduction systems and methods that must be executed.
2. It is necessary to encourage the cost consciousness concept among staffs for a good cooperation.
3. Have a measure to increase efficiency and quality of administration.
All the factors aforementioned are equally important; however, to achieve the target, the executive must seriously determine the target and operate the work task, as well as evaluating the effectiveness of such activity.
The production management target should be set as follows.
1. Production efficiency is an indicator to compares the efficiency and performance of the business with other competitors that have similar businesses.
2. Quality of product and service: the entrepreneur or business owner should make his employees understand the quality control process to maintain the product quality according to the determined standard.
3. Product delivery: the product must be delivered to the customer on a timely manner without any problems. One must place an emphasis on the production planning and product delivery or this will ruin the business.
4. Production cost: the cost reduction must not affect the product quality but it should involve an arrangement to reduce cost in the production process.
5. Safety: this is directly related to the staff and must be strictly controlled since it will make the staff safes and take part in a cost reduction, as well as improving the staff’s quality of life.
6. Staff morale: safety is one of the issues that can increase staff morale; however, the best way to do it is to increase staff wages and benefits.
7. Good environment in the premise: this factor could improve the staff’s quality of life. Nowadays, the business that could manage the environment issue will be regarded as the company that has social responsibility too.
8. Ethics: when there is a mistake, the entrepreneur and business owner must accept and adjust their production or service providing process in order to enhance safety and credibility.
If the business owner can make everyone in the organization realize and act according to all the issues aforementioned, there will be no problems in production and more importantly, the production efficiency will be higher.
3. Controlling the production or service management
Controlling the production or service management
To continuously develop and sustain the business operation, the entrepreneur or business owner must have the controlling system for production and service management. The system that is widely accepted is PDCA (Deming Cycle) which is explained below.
1) P (Planning) planning means to see whether there are projects, activities, or methods that can be used in managing the production or service.
2) D (Do) means to act according to the plan.
3) C (Check) means to check the result of the operation to see whether it aligns with the determined target and objective in the plan.
4) A (Action) means to improve, adjust, and set standards in working. It also includes the determination of new method and guideline to solve the problem found in the process.
The PDCA Deming Cycle must be pursued regularly to make a continuous improvement.