What are the common methods used for cost management in factory enterprises?

Thread Content

　　What are the common methods used for cost management in factories and enterprises? Experts in lean production consulting from Huatianmou explain that the six common methods for cost management in such organizations include: experience-based cost management methods, cost control methods based on historical data, target cost control methods based on budgets, target cost control methods based on benchmarks, target cost control methods based on market demands, and cost control methods based on value analysis. 　　In the process of creating product value, enterprises must strictly distinguish between value-adding activities and value-dissipating activities, and should minimize the latter in order to reduce production costs. 　　What are the common methods used for cost management in factory enterprises? 1. Total Quality Management. Total Quality Management is considered one of the most important research topics in cost management at the end of the last century; its core principle is that products must fully meet customer needs. The profits generated by high-quality products are far greater than those resulting from product quality issues, as dealing with such issues such as repairs and product returns incurs additional costs that significantly reduce profits. 　　The starting point of total quality management is designing products to meet customer needs, and its endpoint is ensuring that these products satisfy the customers. Quality refers to the degree of satisfaction that consumers have with a product or service. Because substandard or defective products, in the current buyer’s market environment, mean that companies risk losing customers and their market share; the consequences are obvious. Pursuing quality inevitably incurs costs, which generally include prevention costs, inspection costs, internal defect costs, and external defect costs. They are the costs incurred by enterprises to ensure that their products meet specified quality standards. 　　2. Value Chain Analysis The value chain is a method used to describe the relationship between a company’s various operations and the value of its products, throughout the processes of research, development, design, production, and sales. For example, inventory serves only as a precautionary measure in a company’s production activities; its presence does not increase the value of the company’s products. Therefore, such operational costs should be reduced as much as possible. The transfer of semi-finished products within a company’s production departments also does not increase the value of the company’s products. Scientific methods of network planning should be employed to arrange the production workshops in an appropriate manner, thereby reducing the need for transferring semi-finished products and minimizing related costs. 　　3. Zero inventory and just-in-time production Since inventory management is an activity that does not add value, many companies strive to achieve zero inventory. However, zero inventory poses significant risks to product production; if suppliers fail to deliver goods on time or the materials supplied have quality issues, the losses incurred by the company can be substantial. 　　Therefore, the prerequisite for zero inventory is having good cooperative relationships with suppliers and customers. Related to this is the just-in-time production method—JIT. Under this production philosophy, companies produce goods only when orders are received, and various components on the production line are manufactured when they are needed in the next production step. 　　This production method requires enterprises to not only obtain various orders in a timely and orderly manner and develop products, but also ensures that all components meet high quality standards, while the skill levels of the production workers must also be extremely high. Because once there is an error in a production step, the entire production process has to stop. Therefore, under this mode of production, enterprises must also possess rapid and flexible adaptability to handle any failures or defects that arise promptly. 　　4. Activity-Based Costing Activity-Based Costing is a cost calculation method that uses activities as the basis for management; it calculates the production costs of products by analyzing the cost drivers of activities, thereby providing companies with more relevant and relatively accurate cost information for activity management. 　　Workload is the combination of raw materials, technologies, methods, and environment consumed by a company to produce a certain amount of products or services; it represents standardized methods and techniques that are carried out repeatedly, independent of the uniqueness of the finished products. Every time a company completes a task, it consumes certain resources, and the output of that task generates value which is then transferred to the next task. This process continues step by step until the product is finally delivered to customers outside the company. 　　Therefore, a company’s production process is a process in which resources are consumed by operations and products consume operations, and it is also a process of value creation. However, not all tasks are value-adding. The goal of activity-based costing management is to eliminate non-value-adding tasks to the greatest extent possible, improve the efficiency of value-adding tasks, reduce resource consumption, and thereby lower costs in the end. 　　What are the common methods used for cost management in factory enterprises? The above is the introduction provided by the lean production consultants at Huatianmou. Under the traditional manual management approach, cost control in factory enterprises is influenced by numerous factors, making it difficult – if not impossible – to achieve optimal control at each stage. Modern cost management requires a fully integrated system that can coordinate the planning, monitoring, and management of various costs incurred by a company, thereby enabling all of the company’s business activities to be carried out in a market-oriented manner.