Leveraging cost reduction potential through resource efficiency

A man with the calculator calculates the costs.Click to enlarge
Costing is an instrument that promotes resource efficiency
Source: Picture Factory / Fotolia.com

Across the board resource efficiency optimization is one of the very best ways to reduce manufacturing costs and improve competitiveness in the business sector. This principle is borne out by the outcomes of a program that provides companies with advice on how to improve material efficiency.

Material costs: an undervalued cost factor

For manufacturers, material costs are the largest single expense, accounting for 47 percent of total gross output, compared with only 18 percent for personnel costs. Hence material costs play a key role when it comes to companies being and remaining competitive. Companies can and should use this cost factor as a springboard to reduced operating costs and resource use – which of course works to the benefit of both the economy and the environment.
The need for resource efficiency optimization is clearly illustrated by, among other things, the fact that despite the key role played by material costs for a company’s competitiveness, raw material productivity has increased less than work productivity since 1995.

Resource use can be reduced, and costs along with it

It has been estimated that manufacturers could reduce their material costs by up to 20 percent, through savings that can be achieved with relatively little effort. However, some of these measures can only be implemented with the aid of subsidy programs. Demea (the material-efficiency agency arm of the federal government) similarly estimates that a 20 percent increase in material efficiency by 2015 is within reach. Given the fact that €500 billion worth of materials are processed in Germany each year, this would translate into annual savings of €100 billion.

The concept that existing resource efficiency potential has not been leveraged by a long shot is supported by the VerMat program, which identified considerable savings potential in virtually all companies. Through the VerMat program and demea, the Federal Ministry of Economics and Energy funds business consulting services aimed at improving the material efficiency of individual companies. The program’s consulting activities have revealed that more than €200,000 (i.e. 2 percent of revenue) per year and company could be saved. This potential could by and large be realized at little expense and with small investments that would pay for themselves very quickly. More than half of the measures recommended by outside consultants were rolled out for less than €10,000, while an additional 20 percent paid for themselves in less than six months and entailed outlays of less than €50,000. Energy and other savings were realized as well.