Cost Cutting Measures Can be Costly to Your Business
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.
During a recent visit with one of our Sales Directors to a current customer who is using our ExPress® 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, we followed up with the General Manager asking to him to share prices their company receives for selling ExPress® soy meal and soy oil. From this we calculated the loss 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 $8.07 for every ton of soybeans processed, all in an attempt to save approximately $1.00 per ton in wearing parts for the press. If left uncorrected this decision would have resulted in an annual loss of revenue of $116,208. Thus, the intended cost savings actions actually resulted in significant negative impact.
Our team of sales directors, nutritionists, engineers and technicians 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. If you have questions about your business or extrusion operation please reach out to a sales director near you.