How To Control Costs Through Time Tested, Real World Techniques

HOW TO CONTROL COSTS
Cost Control Training for Team

Leaders; Supervisors; Support
Staff; and Managers
04/28/10 Center for Organizational Excellence and Effective Change 1

BENJAMIN FRANKLIN SAID:
“ WATCH THE PENNIES AND THE DOLLARS
WILL TAKE CARE OF THEMSELVES.”
What he was referring to is that if we focus on the small

things, the larger problems will often “seem to take care
of themselves”.
Conversely, if we focus only on the large things, the small

things will still be there and still cost us time, money and
effort.

WHY SHOULD I WORRY ABOUT

CONTROLLING COSTS?
• Competition
• Ability to be the “Supplier of Choice”.
• Profitability
• Your Personal “Profit” in the Company

• OUR FUTURE

Just like you and I make
O rganizational Life Spans
choices on what we
purchase based on 80% 69%
quality; performance 60%
and cost 40%
38%
27%
22%
20%
So do your Customers!!! 0%
1 Year 3 years 5 years 7 years

 YOU ARE THE FRONT TEAM IN THE
ORGANIZATION AND THE PIVOTAL
POSITIONS TO INFLUENCE COSTS AND
PROFIT MORE THAN ANY OTHER
POSITION IN THE ORGANIZATION

ONE OF YOUR MOST CRITICAL TASKS IS TO ANALYZE

WHAT HAPPENS ON “GOOD DAYS” WHEN EVERYTHING
SEEMS TO GO “RIGHT” AND THEN FIGURE OUT HOW
TO STANDARDIZE THE CRITICAL ELEMENTS THAT
MADE IT “GO RIGHT”.
IF YOU INCREASE THE NUMBER OF “GOOD DAYS” SO
THE “GOOD DAYS” BECOME THE STANDARD
YOU WILL BE SUCCESSFUL
IT SHOULDN’T BE “JUST
LUCK”!!!!!!!
 Regardless of what most people think,
profits in most companies are not “huge”.
 The main reasons for profits not being

higher is due to EXCESS COSTS.

TRADITIONAL MODEL
COST + PROFIT = SALES PRICE
NEW MODEL
SALES PRICE – COSTS = PROFITS
YOUR PERSPECTIVE MAKES A BIG

DIFFERENCE ON PROFIT

There are three ways to reduce costs:

- Sell more product
- Raise prices
- Increase productivity
WHICH WAY IS THE “BEST WAY”?

REDUCING COSTS THROUGH IMPROVED

PRODUCTIVITY IS THE BEST CHOICE
AND
THAT IS WHY COST SAVINGS IS
YOUR RESPONSIBILITY

WHAT EVERY MANAGER, SUPERVISOR,
TEAM LEADER, INSPECTOR, ENGINEER,
PARTS HANDLER, STAMPING PERSON,
TOOL MAKER, MAINTENANCE PERSON HAS
TO LOOK FOR THE ‘TIME LEAKS” IN THEIR
AREA

“Time waste is the easiest of all waste to

have and the hardest to correct because it
does not litter the floor”—Henry Ford

Finding the “time leaks” and solving them

will allow you to add valuable process time
(value-added time) to your team’s work
performance without adding more
equipment; adding more space; or adding
more people.

WAIT TIME
- Often the easiest time loss to identify and a
good place to start your “cost savings”.
- As you look around your area of responsibility,

find “Wait Time”.
- Waiting for parts; Waiting for Team Leader;

Waiting for QC; Waiting for Equipment to be
fixed, Waiting for Information; Waiting for
Tools;.
“WAIT TIME” CAN ALSO BE “HIDDEN”.
- Production Sheets may not list all the “wait times”

which prevents you from seeing the problem.
- People sometimes think that showing “wait time” will

show that they have a problem. However, you cannot fix what
you do not know.
- People are not trained to walk through their area with

their “eyes open” so they can see the “wait time”.

- People may “pace” themselves so they are not
transferred to another job or task if they complete their
own job before the end of the shift (OR THEY WANT
OVERTIME)
- Look for “machine controlled” processes where

someone is standing “waiting for the machine”.
How can you utilize this type of wait time? Speed up the
machine? Integrate another job with the first job?
- Ask yourself, “Is my team doing all they can”? Or “Are

they doing all I supply them?” There is a difference!!!

“Wait Time” can also be “Hunting Time”.
- If people have to go off and “hunt” for

tools, materials, gauges, Team Leaders, or
information, then this is “wait time” and
will increase your costs and reduce your
value-added time.

LEAN LAW #1
EVERY PROCESS CAN BE IMPROVED

LEAN LAW #2
90-95% OF THE TIME MATERIAL SPENDS IN A PLANT IS

WASTE(NON-VALUE ADDED)
ONLY 5-10% IS VALUE-ADDED

YOUR TASK IS TO GO AFTER THE 90-95%
WASTE TIME OR NON-VALUE ADDED TIME
IN EACH PROCESS/TASK

THERE ARE FOUR MAIN CATEGORIES TO

FIND THE 90-95% WASTE THAT EXISTS
IN EVERY PROCESS:
- MATERIALS
- LABOR
- METHODS
- EXPENSES

LET’S TALK ABOUT MATERIALS FIRST
THERE ARE TWO TYPES OF MATERIALS

• DIRECT- USED DIRECTLY IN MAKING
PRODUCT
• INDIRECT- SUPPLIES TO SUPPORT

LETS TALK ABOUT LABOR NEXT
THERE ARE TWO TYPES OF LABOR

* DIRECT LABOR (DIRECTLY
MAKING PRODUCT(VALUE-ADDED LABOR)
* INDIRECT LABOR- EVERYONE ELSE

LETS TALK ABOUT EXPENSES
WHILE SUPPLIES ARE ESSENTIAL, WE NEED TO

FOCUS ON CONTROL OF SUPPLIES JUST AS MUCH
AS WE DO ON LABOR AND MATERIALS

LET’S FOCUS ON METHODS NEXT
HOW A PROCESS IS PERFORMED, WHAT TASKS ARE

REQUIRED; THE MOVEMENTS THE OPERATOR MAKES,
THE EQUIPMENT RELIABILITY/CAPABILITY, HOW
MATERIAL IS DELIVERED OR TAKEN AWAY LARGELY
DETERMINE THE PROCESS TIME PER PIECE.
WHAT IS THE DIFFERENCE IN RESULTS IF A

PERSON “WASTES” 10 MINUTES IN
“WAITING” OR PERSON SPENDS 10 MORE
MINUTES PER HOUR DOING A JOB DUE TO
POOR METHODS?
NONE!!!!!

OUR JOB IS TO DELIVER QUALITY

PRODUCT TO OUR CUSTOMERS, ON
TIME, EVERY TIME, AT PRICES THAT
THEY ARE WILLING TO PAY AND WITH
THE REQUIRED QUALITY

• IN ORDER TO ACCOMPLISH THAT, WE DEPEND
ON PEOPLE
• PEOPLE TAKE TIME TO DO THINGS.
• TIME = MONEY
• THE PROPER CONTROL OF TIME IS THE FIRST

RESPONSIBILITY OF EVERYONE.
Suppose you want to move to a new home. You figure that you
and a friend can do the job with a rented truck.
One of the first things you do is determine how much the truck
rental is going to cost.
Next you start planning your move so that you save as much
time moving things, loading and unloading process, to
minimize time and maximize productivity.
Isn’t this the same thing we are asking

people to do in their jobs?

YOU CAN DO A LOT ABOUT HOW PEOPLE

SPEND THEIR TIME AT WORK.
YOUR SAFETY; QUALITY;

PRODUCTIVITY AND COST
PERFORMANCE ARE A DIRECT
RESULT OF HOW WELL YOU MANAGE
PEOPLE.

YOU MANAGE IN FOUR WAYS TO CONTROL COSTS
- HOW EFFECTIVELY PEOPLE PERFORM THEIR

TASKS
- THE METHODS THEY USE TO PERFORM THE JOB
- THE AMOUNT OF TIME THAT IS WASTED.
- WHAT THEIR MOVEMENTS ARE TO PERFORM A

TASK.

THE PEOPLE WHO CAN HELP YOU THE MOST TO
SUCEED ARE YOUR OWN PEOPLE.
JUST AS IMPORTANTLY, THE PEOPLE ON YOUR

OWNERSHIP TEAM CAN HELP YOU SUCCEED.
THEY CAN HELP YOU THE MOST WHEN YOU GET THEM
INTERESTED IN HELPING YOU AND UNDERSTANDING
WHY IT IS IMPORTANT TO HELP YOU
THEY CAN HELP YOU SAVE MONEY AS WELL AS

SPEND MONEY.

THE TIME OF PEOPLE IS THE MOST

IMPORTANT ITEM TO WATCH IN
GETTING THE BEST RESULTS FROM
YOUR TEAMS

“People adopt the style of the Leader they

work for”.
WHAT IS YOUR STYLE and WHAT DOES IT

COMMUNICATE TO YOUR TEAM?

LEAN LAW #3
IT COSTS THE SAME PER MINUTE WHEN

PEOPLE ARE ADDING VALUE AS WHEN
THEY ARE STANDING WAITING FOR
SOMEONE OR SOMETHING.
HOWEVER, YOUR CUSTOMERS ARE ONLY

WILLING TO PAY FOR THE VALUE ADDED.

• You must be consistent on what is
acceptable.
• You must teach people the proper ways to
do their work.
• Check up regularly to insure that they
understood what you wanted.
• Take immediate action when a problem is
found.
INJURIES, WAIT TIME, LOST TIME, EXTRA

WORK, POOR METHODS, POOR
MATERIALS, REWORK, AND POOR
QUALITY WORK ARE TIME-COST EXTRAS
THAT YOU AND YOUR PEOPLE CAN
CONTROL

LEAN LAW #4
CONTINUAL IMPROVEMENT COMES FROM

SAVING THE TIME THAT IS BEING
WASTED

PRODUCTIVITY DEPENDS ON SEVERAL DIFFERENT KINDS OF
TIME USES:
• The work pace of people.

(Concept of 100% pace)
• What methods are they using?
• How much time do they lose that could be prevented?
• What part of their production/process is scrap or rework?
• How much “extra” work are they performing that could be

eliminated?

LEAN LAW #5
THE ACTUAL COST OF A PRODUCT IS IN

DIRECT RELATION TO THE PLANNING,
METHODS, TRAINING, ATTITUDE,
MATERIALS, EQUIPMENT THAT IS USED
IN A PROCESS

LEAN LAW #6
IT IS NOT THE HOURLY RATE YOU PAY

THAT DETERMINES COST, BUT RATHER
THE PRODUCTIVITY THAT YOU RECIEVE

HOW MANAGERS, TEAM LEADERS AND
SUPERVISOR CONTROL COSTS
THE POSITIVE IMPACT OF PRODUCTIVITY ON COSTS
RAT PIECE LABO RAT PIEC LABOR
E OF S R
E OF ES COST
COST/ /MIN
PAY/ PER MIN PAY/ PER
HR HR HR HR
$11.0 50 $0.22 $12.0 53 $0.22
0 0
$12.0 50 $0.24 $13.0 53 $0.24
0 0
$13.0 50 $0.26 $14.0 53 $0.26
0 0
$14.0 50 $0.28 $15.0 54 $0.27
0 0

LEAN LAW #7
WASTED TIME HAS THE SAME IMPACT

ON COSTS AS RAISING YOUR PRICES
PER PART.

　　　　　　　　
6 4 2
NON-VALUE
　 10MIN 8 MINS MI MI MI 0 MINS
ADDED TIME
NS NS NS
　　　　　　　　
VALUE-ADDED
　 50 52 54 56 58 60
TIME
　　　　　　　　
PIECES/HR 　 50 52 54 56 58 60
　　　　　　　　
TIME PER 1.2 1.15 1.11 1.07 1.03 1.OO
　
PART MINS MINS MINS MINS MINS M INS

LEAN LAW #8
SCRAP OR REWORK HAS THE SAME

IMPACT ON COSTS AS RAISING
YOUR PRICES PER PART.

　　　　　　　　
TOTAL PARTS
　 225 225 225 225 225 225
RAN
　　　　　　　　
GOOD PARTS 　 225 222 220 218 215 210
　　　　　　　　
SCRAP PARTS 　 0 3 5 7 10 15
　　　　　　　　
2..00 2..06
TIME PER PART 　 2..02 MINS 2..5 MINS 2..09 MINS 2..14 MINS
MINS MINS
　　　　　　　
% INCREASE IN 1.4 % 2.3% 3.2% 4.5% 6.7%

　 0%
TIME INCREASE INCREASE INCREASE INCREASE INCREASE

TOOLING EXPENSE
• A common source of excess expense is tooling in terms
of wear; care; breakage, loss.
• If the tool(s) you or your team are using are not the
right tools for the job, then you will have “waste” on
replacing tools.
• People need to be trained on how to properly use
tools.
• People need to be held accountable for improper use
of tools; breakage due to their carelessness; or failing to
properly take care of the tool when they use the tool.
MATERIAL COSTS
• Material costs are the single largest cost in
making many products.
• Any “waste” that can be eliminated with material
costs will have a significant impact on our overall
costs and profits.
• Internal Scrap impacts your costs because
you pay twice for the material and labor to make
parts.

• Are we careless about the “small” material
costs?
• This is very common because the “small”

costs are so small for each item that we
think the impact is minimal.
• But is that really true?

Total Number
Cost Per Part 　　 Total Cost
Scrapped
　
.$01 per part 1000 $10.00
$.01 per part 100,000 $1,000.00
$.01 per part 250,000 $2,500.00

 You need to make people more aware of the
cost of materials and its impact on your profit
and competitiveness when material “waste”
exists.
 You need to create and develop a mindset

that “material scrap” is “wasted money”
and you need to develop a sense of urgency on
eliminating material waste.
Cost Per Part # of Parts Scrapped Cost
$20.00/part 3 $60.00
$25.00/part 3 $75.00
$15.00/part 10 $150.00
$26.00/part 30 $780
　　
How many times do you scrap parts 　
and not realize how much money you 　
are throwing away? 　
If it costs you $2500 per day in internal scrap

that is equal to 24 people working for 8 hours at $13.00/hour/person
　　

The material cost on the previous chart

really is double that cost since you will
have to run additional parts to replace the
scrap.
That is why EVERYONE NEEDS TO BE

URGENT ABOUT SCRAP ESPECIALLY
SCRAP THAT IS PREVENTABLE.

MAINTENANCE COSTS
True or False
It is the responsibility of the PE Team for

the equipment in my area.

FALSE
It is the responsibility of all the following
people for the operation and care of their
equipment
• Operator
• Team Leader
• PE Member
• PC Member
• QC Member

Each Person listed on the previous slide is

responsible for working together as a
TEAM to insure that equipment is being
cleaned; properly cared for; correctly
operated; properly repaired when
necessary and done so in a timely manner

Team Members; Team Leaders;

Supervisors; Managers all need to take a
more proactive and timely position for
insuring that the equipment costs are
minimized in their areas of responsibility
while insuring that safety; quality and
productivity goals are achievable with
good working equipment and tools.

• Do you take an active role with the PE Team in finding

the “Root Cause” for recurring equipment breakdowns
so the cause can be eliminated?
• Does the PE Team have a “production” and
“Customer” focus when it comes to equipment
maintenance and operation?
• Are you always “putting a band aid” on your
equipment problems?
• If you are not satisfied with your equipment
performance and reliability, do you discuss it with
your PE Team?

THE MINDSET FOR CONTROLLING COSTS
• STUDY ALL PROCESSES.
• ELIMINATE UNNECESSARY STEPS.
• IF YOU CANNOT ELIMINATE ANY STEPS CAN YOU INTEGRATE OR

COMBINE TASKS
• IF YOU CANNOT ELIMINATE OR INTEGRATE CAN YOU AUTOMATE?

• Why are we doing this process this way?
• Why do it at all?
• Work on the “small things” that you
directly control and do not need approval
for.
• You can get a lot of improvement without
having to spend a lot of money.

• A 1% improvement in productivity is
achieved by finding just 4.5 minutes of
“waste” to eliminate in an 8 hour day.
4.5 minutes
per shift

• Observe each operation and determine how
many steps the operator(s) take and find ways
to eliminate the “excess steps”.
• Observe each operation’s parts delivery process

and find ways to reduce the number of parts on
the line and the operator’s movements to get
the parts.

Remember the “Multiplier Effect” when

determining costs savings---
Small per piece savings can be really large

savings if you run a lot of parts or use the
same part at several operations.

• Ten 1% improvements gives you the same
result as one 10% improvement
• Yet it might be easier to find and

implement the 1% improvements than the
one 10% improvement.

INDIRECT LABOR
Indirect Labor costs must be controlled just
like direct labor.
While it may be more difficult to

“standardized” the indirect work, if you
don’t, your costs will increase.

There are 3 categories of Indirect Labor:
- Necessary- Have to have
- Optional- Nice to have but do not really
need.
- Luxury- Extra that we have because we can
afford it.
Evaluate your indirect labor and see how

many fit into the Necessary category-
eliminate all the rest!!!

You need to monitor the work that each

Indirect Labor Member does just like you
do a Direct Labor Member.
If your Indirect Labor Member is “wasting

time” it increases your labor costs just like
if a Direct Labor Member “wastes” time”

One of the problems with Indirect Labor

tasks is the level of efficiency and work
pace that the indirect tasks are done at.
If you have a 40% effective work pace

being performed, you are losing 60%
available time for that job and your labor
costs go up.

By using the concept of “100% Normal”
pace, you will find that you can improve the
productivity of your Indirect Labor Members
without spending money on equipment, space or
additional people.
NOTE: Train each person on what the “100%

Normal” pace is visually and then assign them a
project to evaluate all indirect jobs and
determine the effective work pace.

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HOW TO CONTROL COSTS

Cost Control Training for Team

04/28/10 Center for Organizational Excellence and Effective Change 1

What he was referring to is that if we focus on the small

Conversely, if we focus only on the large things, the small

04/28/10 Center for Organizational Excellence and Effective Change 2

WHY SHOULD I WORRY ABOUT

• Your Personal “Profit” in the Company

04/28/10 Center for Organizational Excellence and Effective Change 3

04/28/10 Center for Organizational Excellence and Effective Change 4

04/28/10 Center for Organizational Excellence and Effective Change 5

ONE OF YOUR MOST CRITICAL TASKS IS TO ANALYZE

 The main reasons for profits not being

04/28/10 Center for Organizational Excellence and Effective Change 7

YOUR PERSPECTIVE MAKES A BIG

04/28/10 Center for Organizational Excellence and Effective Change 8

There are three ways to reduce costs:

WHICH WAY IS THE “BEST WAY”?

04/28/10 Center for Organizational Excellence and Effective Change 9

REDUCING COSTS THROUGH IMPROVED

04/28/10 Center for Organizational Excellence and Effective Change 10

04/28/10 Center for Organizational Excellence and Effective Change 11

“Time waste is the easiest of all waste to

04/28/10 Center for Organizational Excellence and Effective Change 12

Finding the “time leaks” and solving them

04/28/10 Center for Organizational Excellence and Effective Change 13

- As you look around your area of responsibility,

- Waiting for parts; Waiting for Team Leader;

- Production Sheets may not list all the “wait times”

- People sometimes think that showing “wait time” will

- People are not trained to walk through their area with

04/28/10 Center for Organizational Excellence and Effective Change 15

- Look for “machine controlled” processes where

- Ask yourself, “Is my team doing all they can”? Or “Are

04/28/10 Center for Organizational Excellence and Effective Change 16

“Wait Time” can also be “Hunting Time”.

- If people have to go off and “hunt” for

04/28/10 Center for Organizational Excellence and Effective Change 17

04/28/10 Center for Organizational Excellence and Effective Change 18

90-95% OF THE TIME MATERIAL SPENDS IN A PLANT IS

ONLY 5-10% IS VALUE-ADDED

04/28/10 Center for Organizational Excellence and Effective Change 19

THERE ARE FOUR MAIN CATEGORIES TO

04/28/10 Center for Organizational Excellence and Effective Change 20

LET’S TALK ABOUT MATERIALS FIRST

THERE ARE TWO TYPES OF MATERIALS

04/28/10 Center for Organizational Excellence and Effective Change 21

THERE ARE TWO TYPES OF LABOR

04/28/10 Center for Organizational Excellence and Effective Change 22

WHILE SUPPLIES ARE ESSENTIAL, WE NEED TO

04/28/10 Center for Organizational Excellence and Effective Change 23

HOW A PROCESS IS PERFORMED, WHAT TASKS ARE

WHAT IS THE DIFFERENCE IN RESULTS IF A

04/28/10 Center for Organizational Excellence and Effective Change 25

OUR JOB IS TO DELIVER QUALITY

04/28/10 Center for Organizational Excellence and Effective Change 26

• PEOPLE TAKE TIME TO DO THINGS.

• THE PROPER CONTROL OF TIME IS THE FIRST

Isn’t this the same thing we are asking

GOOD PARTS 　 225 222 220 218 215 210

How many times do you scrap parts 　

and not realize how much money you 　

are throwing away? 　