In 2024, the corrugated industry capacity continues to grow, and the corrugated industry faces generally low profit margins and competitive pressure caused by product homogeneity. Especially in the case of slowing demand growth, the industry is facing many factors such as weak demand side and high cost side operation, and many corrugated paper companies still feel that if they do not have capacity, they will fall behind.
The capacity of large corrugated and paper mills companies continues to expand, and they have significant advantages in industrial layout, industry scale and brand. In order to enhance competitiveness, small and medium-sized corrugated and paper mills are also increasing their production capacity by technological transformation of original production lines. Like Automation, Digitalization etc..
With the gradual improvement of new production capacity, the supply side of corrugated paper market continues to increase, and competition becomes more intense. The backward production capacity of the corrugated paper industry is also being phased out, many small enterprises are difficult to maintain operations, and the industry concentration is gradually increasing. Large enterprises through mergers and acquisitions and restructuring to expand market share, industry concentration continues to improve, showing the production of integration, survival of the fittest industry development trend.
The market has been changing, enterprises should also adjust the company’s business strategy at the same time with market, but one thing will not change, that is, the key word for manufacturing enterprises can not be ignored, that is, “Cecreasing cost and increasing benefit”.
“Cecreasing cost and increasing benefit” are all the rage these years, so what exactly does it mean? What can it bring to the current and future management of the enterprise? The following is a personal view for your reference.
First of all, we need to understand the five core concepts of “Cecreasing cost and increasing benefit”
1. The cost level of the product is determined by the customer.
“Many companies lack a well-defined cost concept during the development and production of products. They only determine the product price after its production, often resulting in a higher price compared to their competitors. Consequently, the product lacks competitive advantage in the market, rendering such cost targets meaningless.”
They to recognize that the price of a product is determined by the target customer, the customer’s target price that determines the cost, It is not the cost that determines the customer’s target price. The acceptable price for customers, competitive conditions, and strategic choices made by enterprises collectively determine the level of product costs. Meanwhile, internal management and operational models of enterprises as well as product design only influence cost structure. We need to distinguish it.
2. Product cost level should be determined by market price level.
The pricing of a company’s products should be determined based on through market research and customer needs, while also considering the company’s profit requirements and competitive product strategy. Determine the competitive pricing of products with a comparative advantage based on market-acceptable rates, and then employ the cost-backward method to retroactively calculate the product’s cost level and cost structure.”
It is an inevitable choice of pricing and cost management in the market competition environment. Only by inverting the cost through the market price can enterprises meet the market and customer needs. If the enterprise is only wishful thinking in accordance with the traditional cost plus pricing method, determine the cost, and then add a certain profit to determine the price, then ultimately can only be ruthlessly abandoned by the market.
3. Plan the realization path according to the cost target.
First, you need to set a product cost target, and then plan the path to achieve it.
For example, in the Iphone design stage, Apple will clearly define the target cost, then dismantle the cost structure, and then reduce the product cost to the target level under the premise of ensuring product performance and high quality through the supply chain, controlling raw materials and improving production efficiency. and develop a clear road map.
4. The product cost structure should be decomposed according to the product value chain.
Many companies will also ask their upstream suppliers for cost reduction. In fact, a product goes through multiple stages from customer needs to product delivery, including product planning, product design, process design, purchase, production manufacturing, sales, delivery, collection, after-sales service, etc. The cost structure of the product needs to be analyse according to this value chain.
5. The enterprise’s own ability ultimately determines the actual cost level of the product.
Most of times the goal is very difficult to achieve, so is the reduction of product cost, can achieve the expected reduction goal, depends on the ability of the enterprise itself. These capabilities include product design capabilities, technological innovation capabilities, supply chain management capabilities, lean manufacturing capabilities, as well as corporate culture, resource allocation efficiency and management capabilities. Only when each link is coordinated, orderly and efficient operation can we achieve the goal of product cost.
Conclusion:
The current and future competition is foreseeable cruel, the only thing we can do is to understand the current industry situation and future industry trends, and continue to reflect on their own products and operating levels, constantly improve and layout for the future company’s strategy in advance. As long as we still keep learning and have the courage to change and adapt to new trends, in order to be in an invincible position in the fierce market competition.
Article by: Kiven Zeng
