At DEVELOP LLC, we know that the highest risk is no risk. We’ve seen many businesses use cost containment as an excuse to strangle their growth, drive away customers, open the door to competitors, and prevent adoption of necessary technology. We’ve seen many businesses blind themselves to guarantees on improving capacity, scalability, quality, consistency, employee satisfaction, and retention. While we understand the importance of fiscal responsibility, cost containment should never be the justification to reject capital investment, innovation, and opportunities for growth.
Cost Containment is Finite, Growth Potential is Infinite
Pursuing cost containment in the short term can give you immediate gratification to your bottom line, but it is valueless to your growth. There is a mathematical limit on the amount of money you can save on costs. The tipping point where you cannot subtract one more shift, when you cannot store one less piece of inventory, and when you cannot shave one more utility, is real. It exists on a balance sheet. Even with perfect predictability to the point where you know the exact minimum dollar cost you need to operate, what have you actually accomplished for your business? You haven’t increased the capacity of your facility. You haven’t pursued leads for new customers. You haven’t improved the quality of your products or developed new ones. You haven’t improved the retention or job satisfaction of your workforce. Your production floor is not faster, does not produce higher quality products, and is not safer. Think of the hours you spent that could have been directed towards the kind of growth that would have made dollars for every penny you saved. Think of the difference in value to your throughput investing six figures in a custom automation integration that would revolutionize your production processes for decades over micromanaging a group of increasingly disgruntled employees. Micromanaging those employees today is certainly cheaper than the capital expenditure of the machine. But business isn’t about saving money, it’s about making money. There is a big difference between reducing waste in costs and wasting your potential.
Cost Containment Assumes Perfect Predictability
The ideals of cost containment mean reducing expenditures and preventing unnecessary spending. In perfectly predictable environments, it would be easy to identify what is an unnecessary expense. Before the pandemic, it made a lot of sense to hold off on capital investment, stake supply lines on international vendors, and hire and rehire to address labor turnover. The past few years manufacturers experienced unprecedented unpredictability. A labor shortage turned into a labor crisis as workers retired or resigned in mass. Port restrictions, vendor closings, and travel quarantines strangled supply lines. Customers still needed the products and services, but manufacturers scrambled reactively to find solutions. Requirements for PPE completely changed to compensate for social distancing.
The manufacturers most strategically positioned to face the challenges of the pandemic employed methods that reaped the rewards of long term planning; investing in automated machinery, using IIOT real time monitoring of supply lines, and using learning machines to support their workforce. Cost containment fails if the naturally unpredictable swings of the market force you to reactively scramble to fix bottlenecks and inefficiencies. Calculated costs of shut down, under production, and bottlenecks dwarf the dollars you save through cost containment.
Cost Containment Coasts on Success When it Should Exploit Success
Success often makes companies risk averse. Market dominance can be maintained by patents, intellectual property, and sound innovation. But there are always competitors, there are always new developments, inventions, and innovations. The time to grow your business is when you have the competitive advantage, or you risk creating your greatest competitor.
Skype dominated the remote communication field for years through their innovative conference technology. They were even one of the few brand products like Kleenex or Tupperware whose brand was often used in place of the name for the product, “Skyping” rather than video conferencing. After achieving a level of market control few could challenge, they began a series of cost containment strategies that reduced their messaging system, gated some formerly free services, and focused their efforts on maintaining their existing services. Today, Skype has been completely outpaced by competitor Zoom. Zoom came with its own innovations, but primarily took over Skype by offering improved versions of the services Skype had cost contained or gated behind costs.
Cost Containment Feeds Toxic Impulses for Multi-Generational Businesses
“Our founder saw something no one else saw” simplifies your success story into a division between those capable of taking the risk and those that don’t understand the risk. The founder in this case leveraged their resources, time, and reputation to either enter a crowded market with new solutions or to start something revolutionary. There’s a reason we cheer for revolutionary figures, we admire their success, we want to be like them, and most of all, we don’t want to be the obscure and outdated companies that scoffed at the founder.
Despite this, a lot of multi-generational manufacturers don’t learn the lessons of their founder. They take the revolutionary leaps made by the founder and reduce them to the specific decisions they made to start their business. These decisions become business traditions. Business traditions start as smart practices, what was effective once is effective again, but as competitors become wise to your business traditions, the traditions lose their merits as competitive advantages. As other competitors adopt new techniques, technologies, and infrastructure, those business traditions become the excuse for clinging to inefficiency and obsolete practices. These generational businesses think they are honoring the legacy of a founder, ancestor, or a mentor by following their methods to the letter, but they are failing to respect the meaning of their success. They are mimicking the attitudes of the businesses that lacked the courage or the foresight to invest, to risk, and to thrive. These once leading businesses are the saddest casualties of cost containment strategy.
Some Cost Containment Strategies are Completely Impractical for Manufacturing
One of the top cost containment strategies is cost shifting from the employer to the employee, reducing benefits, and reducing employee offerings. The manufacturing industry is suffering a labor crisis, increasing turnover and sabotaging retention would be a death sentence for most manufacturers. Smart manufacturers are seeking solutions that improve safety, retention, job satisfaction, and opportunities for career advancement. Those kinds of solutions only come from long term investment strategies like automation integration.
At DEVELOP LLC we understand how to create custom automated solutions that can fit your budget, achieve the swiftest return on investment, and bring you to a new level of competitiveness. As a thought leader, you understand the risks associated with changing your business model. Let DEVELOP LLC guide you with a low risk, low cost automation assessment. Tell us more about your project, schedule a virtual meeting, or call (262)-622-6104 to learn more about how we can help you automate your business responsibly.
Have you ever had issues with cost containment focused strategies? Did you discover that long term investment in automation improved your bottom line? Tell us in the comments!