How can coating companies do a good job in cost control?

Cost control is one of the key management contents for modern enterprises to seek more profits, greater development space, and stronger market influence and competitiveness. Cost control refers to the penetration of cost management methods into the entire process of enterprise operation, with the target cost value as a reference. But cost control not only refers to mechanical cost reduction or reduction of cost expenditures, but also requires improving the production and operation flexibility and market responsiveness of enterprises through cost control. Especially for coating manufacturing enterprises whose profit margins are constantly being squeezed, cost control is an important means to enhance their profitability and market competitiveness. Therefore, improving the cost control system and integrating cost control measures into the entire process of research and development, procurement, production, warehousing, and logistics is of great significance for enhancing the competitiveness of coating manufacturing enterprises' profit level.

                                                       Cost control principles for coating manufacturing enterprises

Principle of comprehensiveness

The so-called principle of comprehensiveness refers to the comprehensive management concept of cost control, which is implemented by enterprises throughout the entire cost control process, as well as by various positions and employees, to eliminate any loopholes in cost control at any stage, reflecting the vertical to bottom and horizontal to the edge of cost control. The comprehensive principle of cost control mainly reflects the following aspects: firstly, cost control is carried out for the entire product value chain process, and different control strategies are adopted for the cost generation laws of each process link such as research and development, procurement, production, sales, logistics, etc; The second is to permeate the concept of cost control into the corporate culture, cultivate employees' cost management concepts through measures such as education and skill training for each position and employee, and enable them to consciously fulfill their cost control responsibilities in daily operations.

Minimization principle

On the premise of ensuring the normal operation of the enterprise, various cost control measures should be taken to compress the amount of cost expenditure, in order to achieve the goal of minimizing costs and maximizing economic benefits. This is an important principle that cost control should follow. For coating manufacturing enterprises, due to the special nature of storage and logistics transportation of raw materials and their products, there are many uncertain cost factors hidden. It is even more necessary for enterprises to combine industry operation laws and scientific control to avoid hidden cost risks.

The principle of combining responsibility, power, and benefit

Cost control is not just an independent matter of the finance department, but an internal control strategic action that runs through the entire production process of the enterprise and requires the joint participation of personnel from all departments and positions. The key to achieving the cost control goals of the enterprise lies in the cost control execution ability of personnel from all departments and positions. This requires the enterprise to start with institutional construction and clarify the cost control responsibilities of each department and position, And in the specific division of responsibilities, responsibilities, rights, and interests will be combined to drive their cost control execution through interest relationships.

Principle of continuous improvement

With the transformation and changes of enterprise production methods and technological processes, cost control systems and strategies also need to be adapted to them. This requires enterprises to comprehensively sort out cost control systems and adjust cost control levels and strategies based on the specific actual operation of the enterprise and the dynamic changes in the internal and external environment. In the dynamic changes of enterprise production methods and technological processes, continuous improvement of cost control systems should be promoted.

Principle of objectification

The principle of objectification refers to comparing and analyzing the actual cost value and budgeted cost value during the operation of an enterprise, and discovering the reasons for the differences between the actual cost value and budgeted cost value, providing data information services for optimizing and improving cost control strategies for enterprises. This requires enterprises to achieve cost control goals through cost budget target segmentation.

                   Common problems in the cost control system of coating manufacturing enterprises

Cost management issues during the research and development phase

Compared to general production and operation enterprises, coating manufacturing enterprises are facing more intense market competition and constantly changing consumer demand. Therefore, more and more enterprises are investing more time and cost in new product research and development. However, due to insufficient and problematic cost management, the loss of control in cost management during the research and development stage also greatly affects the overall quality of cost control work for coating manufacturing enterprises. The specific costs in the research and development stage are often overlooked, and the actual amount of research and development costs cannot be reflected in product pricing and cost control content, resulting in issues such as inaccurate product positioning and cost measurement. The cost issues in the research and development stage specifically include:

Lack of target cost management

The confirmation of target cost can provide a reference basis for product market positioning and price positioning. However, if a company lacks target cost management, the pricing strategy of the product may become more vague, or only the cost+profit markup method can be used to confirm the product sales price. During the product development period, due to the large fluctuation space of research and development costs, if there is a lack of clear target costs as a reference during this period, the product design cost cannot be accurately defined. This not only results in passive price positioning before the launch of new products, but also misses opportunities for cost control in advance.

Cost management content is not comprehensive

In the product development stage, not only do we have to consume the cost of raw materials, labor, and depreciation of experimental equipment, but we also have to face the hidden cost risk caused by product development failure, or the cost risk of environmental pollution control caused by product development. For coating manufacturing enterprises, the issue of cost increases caused by quality risks and environmental risks in the research and development stage of chemical products must be paid attention to. However, many coating enterprises often focus one-sided on explicit costs in cost control, while ignoring uncertain implicit cost control.

Cost management issues during the procurement phase

Compared with other industries, coating manufacturing enterprises have relatively higher requirements for suppliers in raw material procurement. This is because the types of raw materials required by coating manufacturing enterprises belong to chemical products, and stable quality raw materials are the basis for ensuring the quality of finished paint. This requires enterprises to strictly select raw material suppliers and control costs through the selection of suppliers. However, there are generally the following problems in supplier management of coating manufacturing enterprises: firstly, there is a lack of supplier classification management strategy. The types of raw materials used by coating manufacturing enterprises are diverse and diverse, requiring different types of suppliers to provide the main and auxiliary materials for the enterprise. However, most coating enterprises do not adopt different management strategies for different suppliers, making it difficult for them to control the purchasing price, resulting in increased procurement costs for key raw materials; Secondly, there is a lack of supplier admission evaluation process. If there is a lack of early integrity investigation, qualification investigation, supply quality investigation, or inquiry comparison of suppliers, it is inevitable that supply risks and hidden dangers will occur, thereby increasing supply costs.

Inventory cost issue

Inventory materials include different types such as raw materials, auxiliary materials, semi-finished products, and finished products. Due to the fact that coating manufacturing enterprises mostly produce according to sales orders, production plans are arranged based on sales orders. To ensure normal production and timely delivery of orders, enterprises often need to store a large amount of raw materials and auxiliary materials. Due to factors such as product demand and market changes, the raw materials purchased and stored by enterprises for specific product production may be idle at any time. With the increase of idle materials, the working capital occupied by raw materials remains high. In addition, due to the wide variety and colors of coating products, as well as various factors such as returns and batch surplus caused by deviation in engineering material calculation or sales plan, the inventory of ineffective finished products continues to increase. As the cost of inventory occupation increases, funds settle and the operating cost of enterprise funds increases.

Production process cost management issues

The production stage is the main stage for the consumption of raw materials and labor costs. Proper control of the production process can greatly save production resource consumption. However, due to the extensive management of production lines in coating manufacturing enterprises, there is a common phenomenon of cost waste in the production process. Firstly, there is no standardized management of production process control, which has great arbitrariness. Beyond the standard formula, cost and quality deviations often need to be adjusted through later replenishment, resulting in difficulty in controlling production process costs; The second issue is that many product formulas directly enter mass production without layer by layer validation, and in actual production processes, there is a high likelihood of excessive deviation between formula costs and production costs; The third is the non-standard management of the production site, unreasonable layout of the production workshop, unsmooth design of the production line, and failure to form an efficient production rhythm, resulting in chaotic production order, low production efficiency, waste of human resources, and excessive waste of time costs.

Logistics cost management issues

The logistics cost items of coating manufacturing enterprises cover a wide range of contents, and corresponding logistics fees need to be paid for transportation, warehousing, and loading and unloading. However, coating manufacturing enterprises generally have problems with inadequate management of transportation and warehousing links, increasing the amount of logistics cost payment. Firstly, there is a lack of control over transportation costs. Due to the relatively high requirements for insulation and fire prevention in raw materials and products of coating companies, most of them use road transportation and outsource their business to third-party logistics companies. Compared with other transportation methods, the cost of road transportation is relatively high, which increases the difficulty of controlling logistics costs; Secondly, the warehousing methods of coating manufacturing enterprises are mostly at an extensive level, lacking inventory classification and early warning management. Traditional warehousing methods are difficult to effectively reduce warehousing costs.

Strategies for optimizing the cost control system of coating manufacturing enterprises

The cost expenditure projects of coating manufacturing enterprises are generally manifested in the stages of research and development, procurement, production, transportation, etc. This requires enterprises to adopt different control strategies based on the cost expenditure content of different stages and the shortcomings of cost control, in order to optimize the cost management system.

Improve the cost control system during the research and development stage

The lack of target cost management and incomplete cost management content are common shortcomings in cost control during the research and development stage of coating manufacturing enterprises, which requires enterprises to adopt corresponding optimization strategies.

The first is the optimization strategy for target cost management. After the cost quota for the product development stage is confirmed, the cost reduction space for new products entering the quantitative production stage is relatively limited. Therefore, coating manufacturing enterprises should start from the source of cost and attach great importance to the construction of cost control systems in the research and development stage. In specific operations, the first step is to determine the target sales price for the new product after mass production. Coating manufacturing enterprises have a variety of product types, and there are different grades of products in the sales market. In the early stage of new product development, it is necessary to investigate the sales price of different grades of products in the market to accurately locate the target price of the new product. The second step is to reverse the target cost quota based on the new product sales price and reasonable profit margin, Target cost=target sales price - target profit; The third step is to decompose the target cost into various production stages and use it as the basis for cost assessment.

Secondly, a comprehensive cost management system should be introduced. The cost management content in the R&D stage should not only include material costs, labor costs, and equipment testing costs, but also include R&D quality costs and environmental costs in the cost management category. Quality costs refer to the repeated investment of funds and opportunity costs due to product R&D failures, while environmental costs refer to the non-compliance of new product R&D with low-carbon and environmental protection requirements, So it is possible to increase the cost of later governance.

Improve the cost control system during the procurement phase

According to the procurement cost control laws of coating manufacturing enterprises, it can be concluded that different choices of raw material suppliers have a significant impact on procurement cost control. Therefore, enterprises should choose different types of suppliers based on the supply and demand characteristics of different raw materials. First, optimize the purchase strategy of raw materials with large purchase volume and great influence on production, such as acrylic lotion, epoxy resin, isocyanate curing agent, etc. Enterprises should establish long-term friendly cooperation relations with suppliers of such materials, and use the advantages of purchase volume to gain the voice of price negotiation, and build a cooperation model of setting up a multi-stage price based on purchase volume; The second is to optimize the cost control strategy for materials with small procurement volume but significant impact on product quality, such as additives. Suppliers of such materials should be evaluated from multiple aspects such as material quality and supplier qualifications, and then 2-3 suppliers should be selected to obtain price comparisons; The third is the procurement of auxiliary materials for production or research and development. As the amount of such materials is not large and can be purchased at any time, enterprises have sufficient bargaining power; The fourth is for the procurement management of general raw materials with high demand. Due to the high demand for such materials and the large amount of funds occupied, in order to effectively control the procurement cost of such materials, enterprises can choose 2-3 material suppliers through open bidding to take the initiative in purchasing price pricing.

Improve the inventory cost control system

There are many inventory categories of raw materials and finished products, high storage requirements, and serious idle waste of expired raw materials and finished products, which are common shortcomings in inventory management in coating manufacturing enterprises. This greatly affects the effectiveness of cost control. Therefore, enterprises should adopt optimized control strategies in response to relevant issues. One is to establish a supply chain inventory management model (VMI, Vendor Managed Inventory), which is an innovative inventory management model under the division of labor and collaboration between the manufacturing industry and suppliers. Through collaborative management with suppliers, the raw materials of coating manufacturing enterprises are entrusted to suppliers for management, enabling the manufacturing industry to achieve near zero inventory and thus divert storage cost pressure. Of course, this low-cost inventory management model is adopted, Both parties need to jointly establish a unified data and information sharing platform, so that suppliers can timely grasp the dynamic changes in material demand data of manufacturing enterprises; Secondly, for the problem of idle raw materials and idle finished products occupying a large amount of funds, it is advisable to conduct regular inventory checks and technical appraisal analysis, which can be restructured and downgraded for processing as soon as possible. For materials and finished products that cannot be processed and utilized, a list should be made, and an expert team should estimate the residual value of the discarded items, and then sell the entire inventory to reset the accounting value of the idle goods to zero. The third is to improve the inventory management information system, with automated and intelligent processing by the system platform for inbound and outbound quantities, inventory limits, and safety alert inventory levels.

Optimize the cost management mode during the production stage

In response to the common problems of material requisition, return, and poor on-site management in the production stage of coating manufacturing enterprises, their cost control mode can be optimized and upgraded as a starting point. One is to improve the level of production process management and informationization management of the material requisition system. The finance department conducts real-time supervision of finished product deviations caused by replenishment and includes them in cost assessment, forcing production personnel to operate in a standardized manner and eliminating cost fluctuations caused by random replenishment issues, thus achieving the goal of controlling production costs. The second is to standardize the formula validation process and prohibit immature formulas from entering the large-scale production process, resulting in an increase in production costs; The third is to optimize the on-site management mode in the production process, re plan the production workshop production process, and integrate the design of processes such as batching, dispersion, grinding, and paint mixing to eliminate the negative impact of repetitive and ineffective operations on cost control.

Cost control in the logistics stage

The transportation cost and storage cost of coating manufacturing enterprises are the major cost items in the logistics stage. These two cost control measures can be taken from the following two aspects. Firstly, regarding transportation cost control, due to the significant difference in unit freight rates between different transportation methods such as railways, highways, and shipping, it is recommended to choose the lowest price method or according to the delivery distance, without affecting product production and delivery deadline The delivery quantity is planned and combined with different transportation methods. Of course, excessive conversion of transportation methods will increase the costs of loading, unloading, handling, and packaging, which requires minimizing secondary or multiple transportation in logistics management; At the same time, seek third-party logistics companies with large scale and wide coverage, sign annual opening contracts with them, integrate logistics routes, and use large quantities to gain bargaining power, thereby comprehensively reducing logistics transportation costs. The second is about the control of storage costs. In response to the characteristics of a large variety of inventory products in paint manufacturing enterprises, the ABC classification method can be introduced to adjust the inventory structure to achieve the goal of controlling storage costs.

Cost control is an important way to improve the profit level of enterprises. In the current era of transformation and upgrading of coating manufacturing enterprises, as well as the continuous compression of profit space, more and more enterprises choose cost control methods to enhance market competitiveness and profitability. However, due to the insufficient level of refined management in coating manufacturing enterprises, there are common cost control challenges in the five stages of research and development, procurement, production, warehousing, and logistics. Therefore, coating manufacturing enterprises should seek solutions to address the shortcomings of cost control at the five levels to achieve the goal of reducing consumption and increasing efficiency.