Not all costs are bad.

Over the years, this column has contained countless variations on the theme, "not all sales are good sales." But the same level of attention has not been paid to the equally true proposition that not all costs are bad costs. This can be remedied if metalcasting plant managers go beyond simple "cost cutting" to more advanced forms of management.

Quality is the classic example of a "good cost." Virtually every casting salesperson on the planet, including experts such as W. Edwards Deming, have, in one form or another, said the words, "It's not just the purchase price of an item that counts, but the total cost of the product, including all of the quality costs involved."

This is what we want our customers to believe about castings, yet we frequently do not practice what we preach. For example, many of us are keen to believe that buying an old piece of equipment and refurbishing it rather than buying new will save money. This is usually not the case, on many different levels. Also, metalcasting facilities too often tend to skimp on purchased goods when a higher priced, higher quality and lower total cost alternative exists.

Similarly, investments in defect prevention include other examples of good, quality-related costs, including tooling triage, in-depth tooling review and familiarization, team driven production design, reviewing the part's history with customers and investing in patterns and coreboxes to improve manufacturability, all of which happen before the first part is cast and will contribute to producing the part correctly the first time and every time thereafter. Philip Crosby, in his landmark book Quality is Free, got it exactly right--skimping on quality always costs you more in the end.

Labor, by far a facility's biggest cost, is another key area to consider. Metalcasting facilities traditionally have been quick to cut labor costs by laying off workers when business slows. In my experience, layoffs are almost always a bad idea in circumstances other than a full-throttle turnaround. Layoffs damage morale and productivity; they invariably cause lead times to extend, on-time delivery performance to go down, and customer satisfaction and retention to suffer. Moreover, such a policy forces the firm to bear extremely high re-training costs when the business cycle turns. These costs include significant and hidden hiring costs, productivity costs and scrap and rework costs.

Another factor within the complex and all-important labor equation is overtime, which is perhaps the most telling indicator of the quality of facility management. Simply put, the less overtime, the better the management. Consistently excessive overtime (greater than 5% of the total paid hours) is the ultimate "bad cost." It is indicative of a firm that is "out of control" and should be eliminated without delay by investing in new workers, longer lead times and/or removing work (and, potentially, customers) from the production schedule. When the alternative is excessive overtime, these are indeed "good costs."

Despite the ephemeral and illusory benefits of increased production and operating beyond the need to absorb overhead, consistent excessive overtime is the ultimate bad cost as it severely damages the metalcasting facility's ability to make profit, operate an injury-free workplace, create a collaborative and productive workforce, and improve quality. It is so bad that almost any cost of eliminating it is a good cost, even the emotionally painful costs that come with firing customers and sending patterns to other firms.

Targeted investments in sales support are yet another example of good costs. First and foremost is an advanced approach to production scheduling. Scheduling is arguably the most important function in a jobbing environment, and a commensurate level of resources, along with a high caliber individual on the job, are a must. Proactive customer service, especially as it relates to order status, along with market pricing databases, also are prime investment opportunities in the sales support area. Customers have been telling us for decades that frequent communication and a minimum of surprises regarding order status are keys to customer satisfaction and repeat business.

By utilizing some of the more advanced management techniques, process reengineering among them, it is possible to simultaneously lower costs and improve effectiveness. CEOs should insist that this and other now well-known tools drive continuous improvement programs and that the all-too-familiar approach to cost reduction be abandoned.

As the cliche goes, anyone can manage to do less with less, but only the best can learn how to truly get more from less.

Dan Marcus, TDC Consulting Inc., Amherst, Wisconsin