The Importance of Being Cost Effective
Your costs determine:
Using price as a competitive tool. High costs will force you to sell at prevailing prices. With low costs you can either make high profits selling at prevailing prices, or sell at competitive lower prices.
Availability of liquid cash to spend on marketing, R&D and process improvement. High costs mean less cash for these critical growth activities.
Exhausting seed funds before your MVP is ready. High costs and cash leaks could exhaust the funds before you are halfway to the MVP.
The standard response to high costs is “cost cutting.” The problem with cost cutting is that these could worsen the situation. If you cut publicity or customer support costs, your sales could fall, and your unit overhead costs could increase.
Forensic Costing and Cost Architecting
Forensic costing goes deeper than standard costing and identifies the factors underlying high expenses. It can reveal factors that are not immediately apparent.
For example, inventories require space, storage racks, climate control, and material handling equipment / people. Stored materials could be spoiled or pilfered. Forensic costing quantifies each of these costs.
Cost Architecting focuses on building cost efficiency into operations by designing workplaces and work optimally. For example, it would explore options such as cellular plant layouts and takt time production to eliminate work-in-process and finished goods inventories.
The Handbook for Discrete Manufacturing Startups & Consultants
The Handbook shows how high costs and cash leaks occur invisibly, and the forensic approach to spot them. The forensic approach involves observing things on the factory floor, as opposed to depending on accounting records and spreadsheets.
The book starts by looking at the five common ways cash leaks occur:
Inventory Lag: How cash gets blocked in inventories, and how inventories lead to high costs.
Phantom Labor & Wasted Motion: How poorly designed workplaces and work lead to workers being paid for doing low-value work.
Material Mismanagement & Yield Loss: Why high levels of scrap and expensive rework happen, and cause low material yield.
Overhead Creep: How temporary fixes and over-engineered capacities create “fixed” overhead burdens.
Operational Culture: How unclear instructions, misaligned incentives, and toxic shopfloor habits drive up unit costs.
Diagnostic Checklists
One key feature of the Handbook is the inclusion of diagnostic checklists.
There is an overall diagnostic list to identify the top issue your venture is facing. You can then go to the specific chapter dealing with that issue
Additionally, each chapter ends with a diagnostic list that will help you audit the specific conditions in your venture in the context of the issue discussed in that chapter
These diagnostic lists will help you identify and focus on the high-priority issues in your venture, thus adding practical value to the book.
The diagnostic lists will be of particular value to business consultants as these enable them to narrow down to the critical issues faced by their client businesses.
Case Studies
Case studies add clarity to the concepts discussed, in addition to adding a dimension of realism.
The Handbook includes case studies in all chapters, and a whole Part 3 just for case studies. The cases demonstrate that the concepts are not theoretical and can be implemented in the real world.
The 90-Day Turnaround Programme
The final section of the Handbook is a step-by-step programme to implement the concepts and achieve turnarounds in productivity and profitability.
Get the Book
The Handbook is available at Amazon, priced at US$ 12.99 for the eBook version and US$ 19.99 for the paperback version.
Buy the Handbook for Discrete Manufacturing Startups & Consultants.