Survival of the fittest is the basic rule of market competition. Any enterprise that wants to survive in the market competition, win in the fierce market competition, and continue to grow and develop must have its own competitive advantage. Reducing costs is the basic method to gain competitive advantage.
Reducing costs is a gold mine with huge potential. Reducing costs to achieve benefits is an important focus of enterprise management.
The quality and efficiency of the enterprise management process directly affect the cost. Reducing costs is a problem that all employees of the enterprise have to face. This requires all employees to strengthen the awareness of "reducing costs" and achieve the purpose of reducing costs through full participation of the enterprise and continuous improvement of the enterprise's business process.
Master the habit of cost
Cost is an important concept in corporate financial management. Only by truly understanding the connotation of cost can we control cost as a financial tool.
From different perspectives, cost has different economic connotations. The concept of cost in the general sense mainly refers to accounting cost. The cost we are talking about here is based on accounting cost, and the extension is expanded to the cost category in the economic sense.
(I) Accounting cost and opportunity cost
Accounting cost is a cost concept in the traditional sense. It refers to the various expenses incurred by an enterprise during its operation. It can generally be reflected in the financial accounts, so it is also called historical cost. The cost we usually refer to is generally accounting cost.
Opportunity cost is one of the most brilliant insights in economics. It means that when it is put into a certain purpose, it will inevitably lose the benefits of other uses. This is the opportunity cost of putting it into that purpose.
Accounting cost can often only reflect the past, not the future, and often cannot fully reflect the actual cost of the enterprise's operation.
Opportunity cost can more accurately reflect the cost of a company's limited resources for a certain business activity, thereby forcing the decision makers of the enterprise to use the enterprise resources more reasonably. Opportunity cost is very useful when making business decisions.
(II) Direct cost and indirect cost
We call any cost that can be directly identified as the burden object direct cost; on the contrary, any cost that is not easy to attribute, that is, it cannot be directly identified as the burden object, and must be allocated by some method, is called indirect cost.
The division of costs into direct costs and indirect costs is determined by their traceability. When we want to compare the costs of different departments and different products, we must collect and allocate various costs. Therefore, it is very important to understand the direct or indirect nature of various costs.
(III) Controllable and uncontrollable costs
In order to reduce costs and control costs and achieve results, we must divide responsibilities and assign certain cost items to certain departments or individuals.
The division of controllable and uncontrollable costs is very important for cost control, especially when evaluating departmental work performance.
(IV) Fixed costs and variable costs
Any cost amount that is independent of output and maintains a certain fixed amount over a certain period is called a fixed cost; any cost amount that increases or decreases with the increase or decrease of output and changes in the same proportion is called a variable cost.
In addition to fixed costs and variable costs, there is also a semi-variable cost, which increases or decreases with the increase or decrease of output, but changes in different proportions, called a semi-variable cost. Semi-variable costs need to be allocated through a certain method.
(V) Individual costs and industry average costs
Individual costs are the cost levels reflected from the perspective of the enterprise, which are usually reflected from the perspective of accounting costs; industry average costs are the general cost levels reflected from the perspective of the entire industry.
In addition to the above classifications, the scope of costs can also be divided into capital costs, construction costs of new enterprises or new projects, and manufacturing costs, period expenses and taxes, etc., according to the order of cost occurrence, which will be involved one by one.
Principles, measures and processes of cost reduction
There are cost activities in any link of enterprise business activities. If the goal of cost reduction is not grasped, and the cost is reduced without limit, nothing will be achieved.
(I) Principles of cost reduction
1. The principle of comprehensive intervention
The principle of comprehensive intervention refers to the management of all, all staff and all processes of cost management. All is to manage all costs in the operation of the enterprise. All staff is to mobilize managers, engineering and technical personnel, and the majority of employees to establish cost awareness, participate in cost management activities, and put them into action. The whole process is to manage the design, manufacturing and sales process of the product, and feedback the management effect to discover problems.
2. Exception management principle
We should focus on situations beyond the norm. Only by focusing on abnormal exceptions and providing information feedback can we grasp prominent and significant problems, solve key problems, and ensure the realization of cost targets.
3. Principle of economic benefits
The purpose of strengthening cost management is to reduce costs and improve the economic benefits of enterprises. However, the improvement of economic benefits does not only rely on reducing the absolute number of costs, but more importantly, it is to achieve relative savings, that is, the connotation of cost reduction in scientific and technological progress.
Not only should we pay attention to the reduction of absolute costs, but we should also analyze the improvement of product quality and product output, which can reduce costs and increase profits. We should grasp the relationship between product quantity, quality, cost and economic benefits.
(II) Main measures to reduce costs
1. Divide the responsible parties
Divide the responsible parties at different levels according to the characteristics of the enterprise's production process, the scope of authority of functional departments and various personnel.
Make reasonable divisions for each secondary production unit (branch factory, workshop) of the enterprise, set the auxiliary production department without product output as the cost center, and set the production department with work-in-progress and finished product output as the cost center.
2. Formulate cost management standards
The standard cost control method is to formulate internal settlement prices for raw materials and various cost consumption, determine quotas for production consumption, and manage product costs. The budget control method is that the enterprise formulates an annual cost budget as a cost management standard.
3. Implement cost management responsibilities
The principles to be followed in implementing management responsibilities are: the person in charge should know what consumption he has incurred, the person in charge has a way to measure his consumption, and the person in charge has a way to take measures to adjust when he finds that the consumption deviates from the plan. Only in this way can the management responsibility be implemented.
4. Implement comprehensive cost management
The formation of product costs runs through the entire process of production and operation, involving all personnel of the enterprise. Every employee should actively participate in cost management in combination with his or her job position.
Secondly, there are many factors that affect costs, including objective factors and subjective factors, technical factors and management factors. All factors that are not conducive to cost reduction must be strictly controlled.
Third, the formation of product costs starts from research and development, and goes through production preparation, material procurement, production process, product sales and after-sales service. Therefore, cost management should be carried out throughout the whole process.
Cost management may encounter various difficulties. The most common ones are improper selection of expenditure reduction items, lack of cooperation and participation of employees, or lack of motivation to implement expenditure reduction plans.
Methods to find inappropriateness: understand the expenditure in detail, track and check the bills, find loopholes, and find the reasons. Cancel the outdated procedures, and all employees jointly seek ways to reduce costs. Frequently compare goals and results, and take timely measures to adjust and correct the gaps.
(III) The process of reducing costs
1. Cost forecasting before enterprise construction
When an enterprise is newly built, expanded, or rebuilt, it must propose a variety of feasible plans. Ex ante cost forecasting management is to conduct cost forecast optimization in the links of factory construction, old product transformation, and new product development, and make forecasts for various cost expenditures in the production and operation process in order to effectively control various expenses.
2. Cost forecasting in the production and operation process of an enterprise
Cost forecasting in the production and operation process of an enterprise mainly includes two aspects: target cost forecasting and quota cost forecasting.
Target cost is the enterprise cost level planned to achieve the target profit in a certain period in the future. This is the goal established by the enterprise in cost management for a certain period of time, reflecting the subjective wishes of the enterprise managers.
It is the expected value of the enterprise cost based on a comprehensive analysis of various factors of the enterprise. The target cost can be decomposed layer by layer to each cost center as an effort to reduce costs.
Quota cost is a cost limit compiled according to various current consumption quotas and current normal cost budgets for a certain product design or after taking certain technical transformation measures. The prediction of quota cost is the basis for compiling cost budgets.
3. In-process cost management
The target cost formed by the prior cost forecast should be decomposed layer by layer to the branch factory, workshop, section team and even individuals, as well as the responsibility center such as the purchasing department, so as to encourage them to take various measures to control the actual cost as low as possible below the target cost.
Compared with the ex ante cost management, the cost reduced by the in-process cost management is a small part, but it is very different from the isolated manufacturing cost management in the past. First, it overcomes the arbitrariness without a target, and second, it plays a guarantee role in the realization of the ex ante cost difference (the big part). Therefore, the in-process cost management has become a very important and indispensable part in the entire cost management system.
The establishment of a weekly production cost report system is to change the traditional accounting method of monthly period. After the end of the month, the cost completion of each production unit has become a foregone conclusion. The establishment of a weekly production cost report system, with each cost center as the unit, timely feedback and correction of the abnormal cost situation that occurred last week.
The establishment of a weekly production cost report system requires that the material collection and measurement of various expenses are in weekly units, which will increase the workload of some grassroots financial personnel. There will be certain difficulties in the early stage of establishing this system, but benefits will appear after getting used to it.
The controllable cost target management means that cost reduction is mainly to reduce controllable costs. Expenses can be decomposed through team accounting or personal accounts, and the cost responsibility units can be divided as small as possible. They can be linked to target assessment and personal salary remuneration to mobilize employees' enthusiasm for reducing costs. Cost veto system should be adhered to when costs exceed the standard. The signs of cost increase reflected in the weekly report should be promptly found out and measures should be taken to correct them.
4. Ex post cost management
The social average cost or target cost is used to control the lowest cost in advance, and the standard cost is used to control the actual lowest cost in the process. One link is linked to another and organically combined. Therefore, at the end of the period, the composition of the actual cost can be divided into social average cost, ex ante cost control difference, in-process cost control difference and ex post cost difference. The reasons for the performance of each responsibility center in advance and in the process are analyzed in detail, and feedback is given to control the future. The boundaries of power and responsibility of each responsibility center are clearly defined, so as to create as much value as possible with as little production consumption as possible.
Ex post facto cost management is tantamount to "post-mortem". The current cost overrun is irreversible. Its significance should be the starting point of the next cost reduction cycle, so as not to make the same mistake and find a better cost management method to achieve the goal of cost reduction.
Main methods of reducing costs
(I) Establishing a cost management system
1. Organization system
Organization refers to a way for people to engage in activities for a common goal. In corporate organizations, goals are usually divided into several sub-goals, which are completed by corresponding functional departments.
The cost management goal is a major sub-goal of the corporate goal, and the production department is the department with the most employees and the greatest impact on corporate performance. It is one of the most important organizational systems of the enterprise.
In order to establish a cost leadership advantage, it is generally necessary to establish a "cost center". The cost center is an organizational unit with the goal of achieving the lowest cost. The specific division of the cost center can be reasonably divided according to the organizational structure of the production department of the enterprise. The organizational system is a prerequisite for effective cost management and the establishment of cost advantages.
2. Information system
As the "business language" of an enterprise, financial management provides relevant information systems for enterprise management, and the information system of the cost management system is also known as the responsibility accounting system. The responsibility accounting system is part of the enterprise accounting system and is responsible for measuring, transmitting and reporting information used in cost management.
3. Assessment and reward system
The assessment and reward system is an important factor in achieving cost advantage. It assesses and evaluates the task completion of each cost center, that is, the responsible unit of the cost, based on the cost budget standard. Units that complete tasks well are rewarded, and units that complete tasks poorly are punished to maintain long-term and effective cost advantages.
(II) Establishing a standard cost and target cost system
In order to control costs, the use of standard cost method is an effective way in cost management. In standard cost, "waste" that should not occur is basically excluded, so it is considered to be a cost standard that should be completed.
Standard cost should reflect the business objectives and requirements of the enterprise, and is mainly used to measure the cost control and work efficiency of the product manufacturing process.
1. Classification of standard cost
Standard cost can be divided into two types according to the production technology and management level of the enterprise: ideal standard cost and normal standard cost.
Ideal standard cost refers to the lowest cost that can be achieved under the optimal production conditions using the existing scale and equipment. The basis for formulating ideal cost is the theoretical performance standard, the ideal price of production factors and the highest possible production and operation level.
Normal standard cost refers to the standard cost formulated under good efficiency conditions based on the general production consumption level. When calculating this standard cost, the inevitable losses in the production process are also calculated to make it conform to the actual production and become a practical cost standard.
In terms of quantity, the normal standard cost should be greater than the ideal standard cost, but should be less than the historical average. In the standard cost system, the normal standard cost should be used. The purpose of the ideal standard cost is to reveal the potential for cost reduction, because the standard it proposes is too high and cannot be used as a basis for assessment.
2. Formulating standard cost
The formulation of standard cost is usually carried out in three aspects: direct material cost, direct labor cost and manufacturing cost. When formulating standard cost, the standard cost of direct material and direct labor is usually determined first, followed by the standard cost of manufacturing cost, and finally the standard cost of unit product.
When formulating standard cost, no matter which cost item, it is necessary to determine its usage standard and price standard respectively, and multiply the two to get the cost standard.
3. Target cost
Although both standard cost and target cost can be used as the basis of cost management, their meanings, guiding ideas and formulation methods are different. "Standard cost" appeared in the early 20th century and is the product of the combination of scientific management of operation standardization and cost management.
"Target cost" appeared in the 1950s and is the product of the combination of cost management and target management, emphasizing the implementation of target management for costs.
The formulation of target cost starts from the overall business goal of the enterprise and is decomposed into specific goals at the grassroots level. When formulating, it emphasizes the participation of the executor himself and the assistance of professionals to give full play to the enthusiasm of managers at all levels.
Compared with standard cost, target cost can play an incentive role in clear goals, which can promote the managers of cost center to spontaneously choose more effective methods to achieve goals and encourage people to achieve the cost goals of the enterprise through hard work.
(III) Responsibility cost management
1. The principle of responsibility cost collection
Other cost management methods are based on the entire enterprise and cannot effectively manage the costs of specific production workshops. The reason is that a large part of the costs incurred by the production workshop is beyond the control of the workshop, so it is impossible to conduct strict assessment.
For the production workshop, it can only be managed and assessed according to its controllable costs. The collection of responsibility costs is based on the principle of controllability, which is the most important feature of responsibility costs. The so-called controllability refers to whether the consumption incurred by the product during the production process can be controlled by a specific responsibility center.
For example, the consumption of materials can be decomposed into two aspects: price and consumption. For the production department, the consumption cost of materials is their controllable cost, while the price cost is an uncontrollable cost; for the purchasing department, the price cost of materials is a controllable cost, while the consumption cost is an uncontrollable cost.
Nevertheless, for the entire enterprise, all consumption is controllable cost, but the controllable subject is different. The controllability of responsibility cost is the basic condition for correct responsibility cost management and effective assessment.
2. Management method of responsibility cost
Responsibility cost is the collection object of each responsibility center. The materials, labor and expenses incurred by each responsibility center for the production of various products are added together to form responsibility cost. According to the characteristics of responsibility cost management, a responsibility cost accounting system should be established to protect the smooth progress of responsibility cost management.
This includes the clear division of responsibility centers and the implementation of various basic work according to the requirements of responsibility cost calculation, including quota, quality inspection, original records, internal settlement price formulation, and the establishment and improvement of internal control system.
Responsibility cost is an important part of cost assessment. Through assessment, each responsibility center is encouraged to control and reduce various expenses, and thereby control and reduce the production costs of various products.
3. Assessment and rewards and punishments of cost responsibility centers
No matter which cost management method an enterprise adopts, the assessment and rewards and punishments of production units are actually based on responsibility costs.
To control costs and expenses, first of all, based on the responsibility cost budget of the cost center, ensure that the responsibility cost of each production unit does not exceed the budget; to assess the cost of production units, the actual cost performance of each cost center should be compared with the responsibility cost budget, and corresponding reward and punishment measures should be taken to ensure the reduction of enterprise costs.
