COST CUTTING MEASURES CAN BE COSTLY TO YOUR BUSINESS

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Management of costs is critical for every business, it is important to identify the areas where cost cutting is done responsibly and without adverse impact to the overall success of the business. Below is an example of where a decision was made to cut costs that resulted in a negative impact to the profit of the business.

At a customer who is using extrusion technology for processing soybeans, the General Manager complained that their oil presses were operating inefficiently and leaving 10% residual oil in the soy press cake compared to previous residual oil level of 7.5%. When questioning the head engineer as to what he believed was the explanation for higher residual oil, he shared it was due to the decision by management to reduce costs by not replacing the oil press parts that wore out.

In an effort to analyze the impact of this decision, a follow up with the General Manager to share prices their company receives for selling extruded soy meal and soy oil. From this the loss was calculated in oil revenue by leaving 2.5% more oil in the meal (10%-7.5%). The effect was the customer was selling oil left in the meal at meal price instead of at much higher value as soy oil. This resulted in a loss of revenue of R105.10 for every ton of soybeans processed, all in an attempt to save approximately R10 per ton in wearing parts for the press. If left uncorrected this decision would have resulted in an annual loss of revenue of R1 526 636. Thus, the intended cost savings actions actually resulted in significant negative impact.

Our team provide recommendations to our customers to ensure they operate their business and equipment to produce extruded products efficiently while maintaining the highest quality and performance. Our team is available to provide onsite evaluations to identify ways to help you effectively cut costs while maximizing profitability.

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