The Daily EO: February 4th – 7th, 2013

I work in manufacturing in Canada.  Manufacturing within North America has its challenges.  We are a society that wants everything always.  We don’t wait.  We don’t save.  We buy it.  If it breaks or wears out, we buy a new one.  That means things have to be cheap.  That means the cost of manufacturing needs to be cheap.  That means Canada – with our minimum wages; a lack of strong protectionist policies and artificial currency control; stringent safety regulations, and comparatively high costs of living – struggles to compete with other countries that may not have these things.

The two major cost drivers in manufacturing?  Raw materials and direct labour.   Sure there is overhead like the building, equipment, non-direct labour (office people), and other items, but its labour and materials that usually makes up 80-95% of each dollar of cost depending on the sector.

Cost Savings are generally fall into several categories:

  1. Raw Materials changes, cost decreases or vendor switches.
  2. Reduction of the amount of labour required for each unit produced. (or improved efficiency).

So, you focus on raw materials.  What are my biggest spends?  How can I use less, how can the vendor come down in cost, is there a cheaper, less quality option?  Can I source from low cost geographies (China, India, etc)?

And you focus on your process.  How can we do that faster?  What is the bottleneck?  Could we combine tasks in a way that nobody is ever waiting for a process to finish?

The way that this is supposed to work is that you do these things well and you keep your current and earn new business.  Because you are continuing to produce the same product, but you can offer a lower price.  Business moves to you and away from other companies that haven’t done as well on cost savings.

But I’ll tell you now:  with few exceptions (say niche manufacturing or some luxury items), there isn’t a manufacturer in North America not trying to accomplish the same thing.  Drive down the cost.

So, you’ll read in the paper about large corporations doing major cuts.  It’s normal to pick up the paper and read about small and large layoffs.  It happens all the time.  Faceless “Management” just making sure their bonus is big again.  And small companies rarely get press coverage unless they are in a small town.

But we are not out to make a buck – we are trying save jobs by reducing costs.  We want to be here, we want our company to be here, we want you to be able to pay your mortgage, feed your kids, or pay for your trip to Hawaii.  Do you think we haven’t reviewed every possible other option?  Driven our suppliers to make the same difficult choices?  Looked at ordering less stationary supplies, frozen wages, reduced spending in all areas of the business?   “Management” has done that and more.  Cutting people isn’t easy; it is hard, it is emotional and it changes the company.

This week, while me and my peers changed the story for many team members with a temporary layoff, we weren’t gleeful.  We were disappointed that we couldn’t have done more to cause less impact on people.

February 4th-7th 2013 Extraordinary:    My peers and team members showed respect and grace in a difficult situation and I am proud of them.


Author: Susan

Susan has a lot to say about a lot of things.

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