Cost management can be the catalyst that boosts a business or help it stay afloat and it can be the wind that downturns it. For a company to realise good profit, the cost must be far less than the revenue; however, this seemingly simple mathematics has proved to be a daunting, difficult, and insurmountable task for many business and companies in the world.
When a company finds it difficult to manage cost, the outcomes are bankruptcy and the inevitable business death.
The Chemical industry is one of the largest industries in the world; they are the starting point for a lot of thing that we use and that are around us. The chemical industry converts raw materials into hundreds of different products some of which are food additives, plastic, PVC, pharmaceuticals, industrial chemicals, adhesives, cosmetics, printing inks fragrances, feed additives, paints, soaps, and pesticides.
For the chemical industry, the following are the cost elements:
- Operating labour
- Plant overhead
- Maintenance costs
- Taxes
- Insurance
- Depreciation
- Working capital
- Administration cost
- Research cost
- Selling cost
The chemical industry is important to the world economy, so it is very important they know how to effectively manage cost and never stop producing.
So what can the Chemical Companies do to effectively manage cost, respond to a dynamic market, and keep their business running at excellent rate?
- Labour savings:
While it sounds callous to suggest any solution that will lead to people losing their jobs, reducing or adjusting workforce could be a very effecting way to manage cost for chemical companies. In the manufacturing sector of which the chemical industry is a member, labour wages usually takes the largest chunk of the cost of production. Therefore, some money can be saved when production is analysed and workforce is adjusted accordingly.
- In-sourcing:
This can be used by the chemical companies to reduce cost of labour, taxes and transportation. It is a decision to perform functions with the internal resources of a company, which helps chemical companies save the costs outsourcing requires. In addition to in-sourcing being effective for reducing and managing cost, it helps chemical companies boost their competitiveness and helps them control vital company information or trade secrets.
- Understand the cost elements:
Chemical companies have to do a time-to-time analyses of performance and the cost elements in the chemical industry. Knowing the amount of money spent on each cost element and how each of them affects production and profits could help chemical companies know the necessary adjustments and reductions. Each cost elements could be used to manage cost but care must be taken to prevent an adverse effect on productivity and profit.
- Identify unproductive expenses:
Sometimes chemical companieskeep spending money on production areas that are no longer productive or that have become less productive. Through advanced technology and new ways of production, some production activities become quiet useless and funding meant for them can be saved.
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