Printer Friendly

Controlling costs through department budgets. (Small Foundry Management).

I know what your customers want and so do you! They want the same or higher quality with lower prices. I've surveyed casting buyers for a number of years, and the #1 item they would like foundries to focus on is lowering costs.

Few small foundries have active plans to fulfill this request from their customers. They may have programs dedicated to improving safety, reducing employee turnover and enhancing quality, but nothing specifically directed at lowering costs.

As a supervisor, I learned that the most effective cost reduction plan is departmental budgeting. Knowing every last detail in my department down to why my ladle liners were using more chisels than budgeted, was critical. When I realized my job was to know that type of information and saw the difference in costs, my appreciation for budgeting grew. Also, because budgeting forced me to focus on costs and cost control in my department, I believe I became a better manager.

The monthly budget meetings didn't seem to last forever once I caught on. If I knew what was causing the budget abnormalities, the boss was happy (maybe not happy, but at least satisfied). Isn't that what every manager wants from his supervisors? They want them to know when things aren't right and what's causing the problem. Budgeting got me there.

I also learned that the boss was much happier when the costs were under budget. (It didn't take me too long to figure out that one.) That prompted me to begin looking earnestly for ways to keep my departments under budget. As the accountant began to lay out the next year's numbers, I started thinking of how I could cut costs. Keeping my costs in line became a game for me. Usually I came up with cost cutting ideas that would ensure that the next year's budget meetings ran smoothly.

The final thing I learned from that initial exposure was to concentrate on the important items. Usually, identifying cost reductions required a lot of work. I realized that finding savings on any item took the same amount of time and had about the same probability of success. Spending my time on the big items provided a much better chance of impacting the bottom number (and it sure didn't bother management too much that I was trying to reduce the cost of significant items).

Budgeting Roadblocks

As mentioned before, I don't find many small foundries using departmental budgets. Being pragmatic, that tells me foundries perceive problems with the budgeting process. Let's look at these problems.

The most common complaint about budgets is that they emphasize the short-term bottom line. Gutting maintenance, research and other programs that benefit in the long term makes the budget look great for the short term but has disastrous effects in the long term.

Another common complaint is that budgets pit one department against another. A molding supervisor might save money by not repairing patterns. His budget looks great, but the cleaning room looks terrible. Another example is the supervisor that doesn't do the necessary cleanup on his equipment. Again, his budget looks good and, in this case, the maintenance budget looks bad. The only way to handle these budget battles effectively is through good management.

Even though these are the most commonly heard complaints, the reason budgets are seen in so few foundries is because they are difficult to start. To make matters worse, starting a budget is most difficult for the two people who should want to see them started in the first place.

The plant accountant will perform the majority of work in setting up the budgeting process. He complains that he's the only one that really pays attention. While budgeting will focus the attention on costs, he'll have to organize expense items by department. That can be an overwhelming task, and he'll be criticized for those decisions.

The other person who has a difficult part in the startup is the boss. The accountant does the majority of the work, but the boss will have tough decisions to make, Besides helping the accountant distribute the costs, he'll have to make the sales predictions for the next year--not a fun job the first few times. The boss also can expect to hear gripes about all the extra work.

In addition, inertia becomes a problem, The operation has run for years without budgeting and most small foundries don't budget. Why should any small foundry start now? The answer is simple. A small foundry should start because fewer and fewer small foundries exist. Those that didn't know their costs and couldn't meet their customers' demands for improved value have shut their doors. You don't want your foundry to be next.

Budgeting Dos and Don'ts

Here are some dos and don'ts for foundries taking their first steps into budgeting.

1 Don't expect perfection.

The initial attempt will be flawed--costs will be allocated to the wrong area, costs may arise that weren't even considered initially, and the supervisors won't welcome it. As employees gain experience in budgeting, budgets will become more accurate, and good supervisors will learn that the monthly budget meetings are another opportunity for them to prove that they are good supervisors.

2 Don't expect supervisors to be helpful in establishing budgets the first time around.

Until the supervisors experience budgeting, they won't be thinking in budget terms and they won't be able to predict costs. They most likely haven't thought about the difference between fixed and variable costs. They probably haven't even considered all the costs involved in their area.

3 Do expect the accuracy of the budgets to improve.

As the monthly meetings occur, discuss and rectify questionable distributions of costs--this leads to more accurate budgets. If the second year's budget doesn't show a significant improvement, closely examine the process.

4 Do make budgets realistic.

One of the most common discoveries when seeing costs detailed is to realize that a profit can't be made under those conditions. Too often the decision that budgets will be cut and/or sales expectations will he raised becomes a unilateral management one. Adjusting budgets without a realistic plan of how the new figures will be reached is a sure way to destroy the value of the budgeting process and the morale of all involved.

5 Do expect supervisors to know when and why significant differences exist between actual costs and the budget.

Management should make sure the supervisors receive the budget reports early enough so they can investigate any abnormal costs. If a supervisor doesn't know why an abnormal expenditure occurs during the monthly meeting, make sure he knows by the next month's meeting.

6 Do make sure budget meetings are timely and private.

Having the meeting promptly emphasizes the importance of the budgeting process. Timely reports are important because the closer an investigation starts to the time of an occurrence, the more easily the necessary information can be found. Holding the meeting in private allows for frank discussions regarding abnormal expenditures, especially in emphasizing the need to learn the cause.

7 Do keep everyone's eyes focused on the bigger picture.

As indicated earlier, department budgets can lead to short-term thinking. Management must emphasize the need for long-term thinking. Only with long-term investments in training, research and marketing will today's small foundries be able to flourish in tomorrow's economy.

While long-term programs are essential to long-term survival, too much concentration on tomorrow and not enough on today can lead to a foundry's demise before receiving the benefits of their longer-range programs. If a foundry's costs are such that it can't sell its castings today, there's little hope of being around tomorrow.
COPYRIGHT 2002 American Foundry Society, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2002, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Comment:Controlling costs through department budgets. (Small Foundry Management).
Author:Lobenhofer, Roy
Publication:Modern Casting
Geographic Code:1USA
Date:Jan 1, 2002
Previous Article:Casting questions & answers.
Next Article:Defense Logistics Agency Program to continue. (AFS/CMI News).

Related Articles
CISA Meeting Examines Global Factors, Reinventing `Companies to be Outside-In'.
Metalcasters Take the Issues to Capitol Hill.
Benton Achieves Quality, Quantity and Consistency in Coremaking.
Rowe's Nobake Expansion Lifts Productivity, Lowers Costs.
2001 Foundry of the Year: Neenah Foundry Co.
Obtaining quality system certification: The galesburg castings way: This article describes a small foundry's path to ISO certification and details...
Managing environmental liabilities for beneficial reuse.
Voice of the industry: as with all manufacturing, foundries struggle to keep electric costs low. How has your plant reduced its cost of electricity?...
Don't let product liability stop you from... cashing in on casting design. (Executive Memorandum).
Talking trade: execs debate how to compete against offshore competition.

Terms of use | Privacy policy | Copyright © 2021 Farlex, Inc. | Feedback | For webmasters |