Cost Cutting is super easy, especially if you're clueless

We have often seen that when a new CEO starts, they can find many levers to save on costs that their former boss couldn’t. So, was the old one incompetent? Let’s take a look at the playbook of Donald Trump’s health secretary, Robert F. Kennedy. He began at the HHS to streamline the government agency. Here are some of his actions:

• He started by implementing a 1$ spending limit on all credit cards. Spending went down immediately. Success? Not really, the consequences are that blood samples could not be transported as ambulances ran out of fuel, and the laboratories couldn’t order mice for their experiments.
  
  

• He cut the funding for the NIS, an institute that deciphered the human DNA, the AIDS virus and found a cure for it. He cut 16.000 grants, which targeted crucial research. However, the worst part was that he imposed a 15% cap on indirect research costs. Currently, approximately 40% of the research budget is allocated to these indirect costs. These 40% cover the costs of the buildings, the laboratory, lab equipment, server clusters, computers, etc.

Therefore, it is not a sunk cost; it is vital to enable research altogether. You see the same things in our foundries as soon as a new CEO or a large consulting firm arrives. They cut costs left and right. It’s actually relatively easy to do. Limit expenses here, lay off people there, and sell some machines, and suddenly the next quarter looks good on paper. The large consulting firms are even better in that they often get paid a percentage of the cost savings.

Where is the Problem?

The operating costs are now lower, which increases the company’s margin. So, why is that a problem? It is the old disconnect between short- and long-term success. In the short term, on paper, low overhead looks good. However, when there are spikes in volume or specific knowledge is needed, the people are no longer there. Or the ones that actually can solve the issue are overworked and leave.

Another “great” idea of many CEOs is that, when the volumes are down, let’s halt production for certain weeks and send the people home. Sometimes, even the government covers the salaries of these employees. However, that is the perfect time to service and upgrade your machinery. Clean the backlog of implementations. Many things are implemented in a rush so that they function properly. For example, you started production of a part, and the timeline was tight. So, you stuck to the first best setting but never came around to try more, adjust the thermal management with new inserts, the spray cycle, or try different release agents. All are crucial to eliminating the last few percentage points of quality issues from your production.

When you start these trials, you cannot define what the output will be. No production engineer can guarantee a breakthrough for CW 28. You have to try certain things and adapt what works. An ROI calculation is often impossible to perform accurately and is therefore frequently excluded from the budget.

These tasks are precisely the key to improving your overall quality, efficiency, and, consequently, the OEE. Additionally, there are more intangible factors associated with these improvements. Having an organisation that is not constantly worried about who will be laid off and which OEM will find the next quality defect is so much more effective in getting ahead. You suddenly don’t need all these express freight shipments, which cost a lot of money and spread the constant fear of a Q-Help situation.

Conclusion

Don’t underestimate the detrimental impacts of short-term successes on long-term growth. The times of crisis, when the volumes are down, are the perfect time to invest, as you have time to try things. You will greatly benefit from this groundwork in the next upswing. However, knowing what to look into and where to channel your resources is key. The Foundry Boot Camp from Casting-Campus GmbH offers you insights into your processes from an outside perspective with the required process know-how and also supports you on the shop floor in implementing these improvements directly. Let’s start the conversation in the Free Consultation Call; schedule it today.