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Cost Reduction in Manufacturing
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Cost Reduction in Manufacturing: Insights from Rod Holter

May 21, 2024
Posted by Chelsey Trevino

This pulls excerpts from our podcast, Inspiring Innovation: Leaders in Manufacturing featuring Rod Holter. To watch our podcast episode, please visit Inspiring Innovation: Leader in Manufacturing or subscribe to our channel on your favorite podcast platform.

In the latest episode of Inspiring Innovation: Leaders in Manufacturing, the focus was on a crucial topic: cost reduction in manufacturing. This episode featured insights from Rod Holter, a seasoned professional with experience in big-box aviation and private equity. Now a franchise owner of Schooley Mitchell, Rod shared his expertise on optimizing cost savings and efficiency in the manufacturing industry.

Within any organization, effective cost management is integral to maintaining competitive advantage and ensuring the sustainability of operations. Rod’s insights provide key strategies for achieving cost reductions without compromising on quality or efficiency.

Cost Reduction in Manufacturing

Effective cost management in manufacturing involves a comprehensive understanding of the entire P&L. In big-box companies, responsibilities often include budget oversight, headcount management, and quality control. However, in private equity, the scope expands to encompass the entire material cost, necessitating a deep understanding of all operational aspects. This approach is important for identifying areas where cost reductions can be achieved.

Leveraging Expertise for Cost Reductions

One of the key takeaways from Rod’s discussion was the importance of specialized knowledge in cost management. At Schooley Mitchell, there are 14 cost categories, each supported by dedicated experts. This specialized approach allows for precise cost negotiations and significant savings. For example, their waste management team can accurately determine the cost of waste disposal across various locations, ensuring clients receive the best possible rates.

The success of this approach lies in the expertise each team brings to their respective cost categories. Beyond traditional cost categories, such as waste, are areas such as telecom, factory supplies, and shipping. For instance, the telecom team focuses on all aspects of communication costs, from mobile phones to internet services. Given that telecom expenses are nearly universal across businesses, this category often yields significant savings. The same goes for small package shipping and less-than-truckload (LTL) shipments, where expertise in logistics and market rates can uncover substantial cost reductions.

Individually, these 14 different categories may not seem like much, especially when organizations focus on the larger spend areas. But if you take those 14 categories and stack them all up, it’s like death by a thousand cuts. That can add up to about 15 percent of the operating costs of the company. So that’s why it’s important to look at all spend categories, no matter how big or small, to uncover potential cost reductions.

Strategic Allocation of Savings

Rod emphasized the importance of strategically allocating savings to enhance business operations. Whether it’s improving employee benefits, investing in new development, or supporting community initiatives, reinvesting cost savings can drive further growth and sustainability.

Rod shared how he often changes the conversation with clients to focus on the potential uses of the money saved. By framing cost savings as “found money,” he encourages clients to think about investing in new technology or machinery that they may have previously avoided due to budget constraints. This strategic approach not only helps in achieving immediate financial benefits but also fosters long-term growth and innovation within the company.

The discussion also touched on the challenges manufacturers face in negotiating good pricing, such as time constraints and a lack of specialized knowledge. Rod advised companies to view external consultants as valuable partners rather than threats, as they bring additional expertise and can help achieve the best possible deals.

Impact of Global Events

Global events and market fluctuations, such as inflation and supply chain disruptions, significantly impact cost management. Rod noted that while these challenges make negotiations more complex, there are still substantial savings to be found. By staying informed and adapting strategies accordingly, companies can mitigate the impact of these external factors.

Effective cost reduction in manufacturing is a multifaceted process that requires a strategic approach, specialized knowledge, and a commitment to continuous improvement. By leveraging data-driven insights, fostering open communication, and strategically reinvesting savings, manufacturers can achieve significant cost reductions and drive long-term growth.

To explore more insights on cost management and innovation in manufacturing, tune in to the latest episode of Inspiring Innovation: Leaders in Manufacturing. Visit our YouTube channel or subscribe on your favorite podcast platform.

Have questions? Feel free to contact us!

Chelsey Trevino

Marketing Manager