There are 7 misunderstandings on reducing production cost in LED industry
Source: Date:2018-08-07

Reducing cost is the eternal theme of enterprise management, but it is now very important and urgent. Especially for the Chinese LED display enterprise entering the era of micro profit, the growth of artificial, raw materials, energy and other production factors is greater than that of the enterprise due to the rapid growth of the new normal state of the overall economic environment. The improvement of production efficiency makes the enterprise of LED display more and more difficult. Therefore, it is no doubt that the way to reduce the cost is undoubtedly a controllable way for the self rescue of the LED display enterprise. However, in the management of cost reduction, enterprises often have the phenomenon of taking the other, counting the accounts in the autumn, relying too much on the finance, having no quality insistence, ignoring the benefit of the supplier and pursuing the surface fashion, which will weaken the effect of the cost reduction and even bring the cost into the misunderstandings. It is possible to hurt the enterprise by understanding the benefit of management to the cost of cutting down the cost and compressing the cost. Misunderstandings make use of the strong position of the buyer's market and blindly price the cost of purchasing, resulting in the reduction of raw material quality in order to reduce the cost of raw materials. Enterprises often bring together a large number of suppliers to bring down the demand for price reduction. If the supplier does not agree to the requirements of the enterprise, the supplier will suspend the combination immediately. Make a relationship. In fact, this is an erroneous zone that is easy to fall into in reducing the cost of the enterprise. In the face of this, many suppliers have to reluctantly accept it, but the next step is to put this unjustifiable demand to its own upstream supplier, and finally, the whole industry chain has a wide range of prices. In the whole value chain of the enterprise, there are interdependence among all links. The cost management of the next link must be based on the cost management of the last link. The cost minimization of the last link does not mean that the cost of the next link will be minimized, and the cost of the whole value chain is also the most important. Miniaturization. Some enterprises are unilaterally pursuing the lowest cost in the procurement process, and then the purchase of raw materials is cheap and qualitative. If only the purchase link is concerned, the cost is optimized, but the cost of the whole value chain is increasing because of the higher cost of the production link, the increase of the cost of the sales department and the decrease of the customer satisfaction because of the poor quality raw materials. Even more, because of the decline in the purchase price, the raw material appears to be good, causing quality accidents, resulting in the damage of the company brand, which is not worth the loss, that is, the so-called "no wrong sale, only buy wrong." Misunderstandings two think that cost advantage is one-sided to reduce production costs simply to reduce production costs, most managers will naturally understand the cost of production costs, the cost of reducing the cost of production activities, do not take care of them. In fact, in the traditional manufacturing industry, the cost of production is only part of the total cost, accounting for about 50 - 70%, and a considerable part of the cost is produced in the fields of technology research and development, marketing, and consumer service, and they are often seldom paid attention to in the cost analysis. Therefore, while paying attention to reducing the cost of production, we should find the way to reduce the cost from the perspective of the whole supply chain. Otherwise, the cost of production is too limited, not only the effect is not obvious enough, but sometimes it will be in the opposite direction. Misunderstanding three regards cost reduction as the cost of all links in the whole supply chain. The lowest cost supply chain is centered around the core enterprise. Through the control of information flow, logistics and capital flow, it starts from purchasing raw materials to make intermediate products and final products. Finally, the product is sent to the consumer by the sales network. Some managers believe that enterprises should seek to minimize the cost of expenditure in all links. Supply chain is a system consisting of a series of value added activities which depend on each other. The cost of each link affects each other, and sometimes even changes. Therefore, it is necessary to optimize the total cost through the coordination and optimization of each supply chain link and the opportunity to reduce the cost. Misunderstandings four understand the cost reduction to reduce the organization, reduce the manpower, reduce the welfare, and take this as a sign of reform, Chinese enterprise management is usually relatively extensive, and the efficiency of resources is low. Therefore, it is important to strengthen the cost management for the enterprise to profit. However, the essence of the cost reduction is to increase the input-output rate of monetary measurement rather than to increase the input-output coefficient, nor to compress the cost blindly. But it is regrettable that many enterprises cost management into misunderstandings, especially in human cost management, and want horses to run fast, and want to eat less grass, is that possible? The results can only be reverse phase out, bad money to expel good money, and become the personnel training base of the peer. What is the appropriate cost, a little bit of economic common sense should understand: the higher the cost of paying a certain cost, the lower the cost, the cost if it can not bring back, it is waste. The cost of employing people is not to judge the size of the cost from the salary of the enterprise, but to judge the value of the employee's contribution to the enterprise. Misunderstanding five neglects the important influence of product development and technology research and development on product cost design. The product design often takes into account the influence of market competition situation, consumer demand, factory production capacity, raw material cost and so on. Once the finished product is finalized, its 60% cost is locked in the concrete operation. The cost can only be reduced by raising efficiency and input-output ratio, and the effect is quite limited. Therefore, the enterprise should take the R & D cost as the first part of the cost reduction of the supply chain, and consider the design cost comprehensively from the easy acquisition of the raw materials, the maturity of the production process, the stability of the production efficiency and the convenience of the product distribution, so as to make the enterprise cost leading strategy win the starting line. Misunderstanding six the lack of dynamic and comprehensive analysis of the cost perspective and the planning enterprise in addition to a time point of the cost behavior analysis, must also consider the absolute cost of value activities and the relative cost changes with time. Some improvement measures reduce the cost obviously at a time point, but as time goes on, the effect presents rapid attenuation, for example, some enterprises make equipment exceed the design speed in order to increase production efficiency, resulting in equipment deterioration in advance until discarded. By analyzing the cost dynamically, the enterprise can predict the possible changes in the cost driving factors of the value activity and take the corresponding action to make it in the position of cost advantage. The persistence of the cost advantage and the prevention of imitation of competitors depends on the common effect of various factors that reduce the cost. The scale of the product, the systematicness of the advantages, and the cost of the proprietary technology are more durable than the other cost driving factors. The competitive advantage obtained through the interaction of multiple value chain links can make it difficult to imitate the competitors and make the enterprise maintain a lasting cost advantage. Therefore, the effect of judging the cost reduction can not only be limited to a certain time node. Misunderstanding seven the contradiction between the factors of cost reduction and the cross effect of the enterprise in reducing the cost, because the lack of overall planning and pre planning often leads to the reduction of the cost of different links in a contradictory way. They try to increase market share, benefit from economies of scale, but produce a variety of specifications, which, in turn, increase management costs and reduce scale effects. They set factories near consumers to save transportation costs, but the cost of production increased because of the spread of production. At the same time, because the difference of product cost often affects its competitiveness in different markets, the enterprise may price some products or customers too high, and give price subsidies to other products or customers, and unintentional price cross subsidies often make the competitor be able to take advantage of it. Conclusion China is a big manufacturing country, and China is the world's 80% largest manufacturer of LED display products. Whether it is the present or the future, the topic of "reducing cost" will be lasting. However, as a LED display manufacturer, the principle of measuring the cost advantage should be followed, which is to reduce the cost of the enterprise relative to the competitor on the premise of providing the same product value with the competitor, which is to reduce the difference between the product and the service. If you do not consider the value of products or services blindly to reduce the cost, it is impossible to bring up the cost advantage of the enterprise. Sometimes it may even be insolvent and counterproductive.

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 Archled Technology Co.,Limited, which is a professional Manufacturer and Exporter of  architectural lighting and controlling system. Archled take"zero defect products" as the goal, constantly improve and enhance the quality of products. We quest for innovation and pursue better user solutions and better user experience.


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