Overcapacity in the security industry: Overview of the "four sins" of cost control for smart security companies

At present, the overcapacity of the entire security industry is an indisputable fact. The competition among many manufacturers in the industry has already entered a white-hot state, and vicious competition and price wars are serious. The author believes that the security industry should establish a new market order, allowing enterprises to improve efficiency by reducing costs, and escape the vicious circle of vicious competition through self-optimization and healthy competition, so as to ultimately achieve the survival of the fittest in the industry. This article uses a case as the background to discuss the "four sins" (four major problems) of cost control in smart security companies, and gives corresponding "redemption strategies", hoping to bring inspiration to readers in the industry.

H Company’s Cost Control “Evidence” Presented in Court

H Company is a professional and large-scale provider of automation control products and solutions. Its main smart surveillance cameras have a good reputation and sales in the industry. In recent years, H Company has been facing the dilemma of high operating costs, which can be attributed to the following four "evidence" issues.

Evidence 1: Production issues

Most of the production and testing equipment used by H Company is imported from abroad. Some of the automated equipment is not equipped with dedicated maintenance personnel in China. When a failure occurs, professional technicians need to fly from abroad to the factory for testing and adjustment. The long waiting time affects the entire production plan. In addition, the automation properties of some equipment often cannot meet the manufacturing conditions of products in unconventional states. In these cases, they can only rely on manual operation. It can even be said that the impact of the use of some automated equipment on costs has increased rather than decreased.

Evidence 2: Procurement issues

Procurement is an important part of the production activities of enterprises. It is closely linked and mutually causal. It can be said that it will have an impact on the activities of many departments. H Company has more than 100 suppliers, but only a handful of them maintain long-term cooperation. On the one hand, due to the forced reduction of procurement prices, they have to find suppliers with lower prices. On the other hand, based on the consideration of procurement cycle, manufacturers who can quickly provide raw materials are likely to become the first choice. Two years ago, the upstream material supplier of H Company significantly increased the price, causing H Company to change its flag and use the corresponding materials of domestic second-tier manufacturers. However, due to the poor quality of materials from second-tier manufacturers, many problems occurred in the products after production, causing huge losses to the company. The problems caused by the arbitrary replacement of suppliers not only affect the products, but also require the replacement of materials for product registration and testing, which increases the risks and uncertainties of the enterprise, causing imbalance in corporate activities and increased costs.

Evidence 3: Human resource issues

H Company goes through a major reshuffle in terms of personnel turnover every year. During the off-season for orders, it uses layoffs to reduce the pressure on employee salaries. At the same time, it also makes position adjustments for senior managers. Purchasing staff are rotated once a year. There is a serious loss of senior executives in various departments of the company. Although the overall loss rate has decreased, the active loss rate has been rising year by year. The labor shortage before the end of each year has had a serious impact on H Company.

The cost of employee turnover can be divided into two types: tangible and invisible. Generally speaking, the employee turnover rate of enterprises in the security industry should be controlled within 10%, but the average employee turnover rate of H Company has been between 14% and 16% for four consecutive years, which is a very high ratio. This has undoubtedly had a great impact on the company's invisible costs. What is more serious is that the turnover of personnel is mainly in the three departments closely related to the product, namely production, R&D and procurement. In particular, within three months of the departure of front-line operators, the company's productivity will drop by 40% to 50%, that is, the departure of employees will make the company's labor productivity only reach half of the expected level for a long time.

H Company's philosophy for hiring senior management has always been "outsiders are better at chanting sutras". Compared with internal training, the company is more willing to pay a greater price to hire senior personnel from other foreign and domestic companies to manage the company. The impact of this hiring system is the increase in explicit human costs. At the same time, more than half of the externally hired senior executives have left, which not only affects the organizational structure and management decisions, but also causes great economic losses to the company due to the chaos in management processes and the loss of related important technologies caused by personnel changes.

H Company has always planned its personnel according to the order output. Although this method can avoid the consumption of labor costs in the short term, layoffs will drive away people's hearts and minds, and employees lack trust and sense of belonging to the company; and managers of functional departments are more worried that their hard-earned industry connections will be lost due to job transfers. This is not only not conducive to the development of various departments of the company, but also more likely to cause various problems in the handover process. The replacement of managers of various functional departments is also like a revolving lantern. With the continuous development of H Company, the loyalty of employees is getting lower and lower, which will not only cause low productivity, affect delivery time and product quality, increase the explicit and implicit costs of the company, but also damage the reputation and image of the company. At the same time, when the orders increase dramatically, the company has to throw out the olive branch of "high salary" to recruit employees. This is like digging a well when thirsty, a vicious cycle. It is precisely because of the lack of personnel reserve ideas in H Company that the labor cost is getting higher and higher.

Evidence 4: Marketing issues

In recent years, the proportion of H Company's marketing expenses to total sales revenue has continued to rise, accounting for more than 30% of total financial expenditures. How did this astonishing figure come about?

It is understood that Company H has spent a lot of money on advertising and travel public relations. Although in the current market environment, price wars and advertising wars are important means for smart security companies to conduct marketing, this is not enough to leverage the market. This is a typical "casting a big net to catch small fish" behavior, and the real marketing strategy needs to keep pace with the development of the times.

In addition, the entire marketing department has always had a "sales first" concept for marketing personnel. As long as there are orders, they will do whatever it takes; as long as they can get orders, everyone can become a salesperson. This undoubtedly caused a huge deviation in the orientation and strategy of the entire marketing department, and the utilitarian mentality was serious. In addition, most sales personnel were transferred from other fields and did not have strong product knowledge and technical background to support them. The development and exploration of the market was very limited and stretched.

Cost control "atonement strategy"

For smart security companies, the cost control system is complex and mutually influential. In fact, it is difficult to achieve effective control of every link, so we must focus on the most effective links in cost control, make breakthroughs, and be targeted. Specifically, we should start with the following four strategies.

Strategy 1: Optimizing cost control during production

The more modernized the enterprise is, the more it tends to use automated production lines to reduce the use of manpower. This is probably the consensus of enterprise modernization, but specific problems should be analyzed specifically. Sometimes blindly adopting automated production lines will often backfire. It is not only because of the fixed attributes of the equipment that the corresponding operation time cannot be adjusted according to the product materials, and the uncontrollable nature of some equipment makes it impossible to cope with the processing of special product states, thus wasting production time, but also because some equipment occupies a large amount of production space, increasing product circulation time, which is not worth the loss for improving labor productivity. At the same time, the maintenance cycle of key equipment is too long, which will also have a serious impact on production planning and shipment. Using manual labor to replace some automated production lines can not only directly reduce the cost of equipment purchase, but also avoid high fixed asset depreciation, labor costs and waiting time for equipment maintenance.

Strategy 2: Optimizing cost control in human resource management

1. Cultivate employee loyalty and increase the value of fixed assets

People are the most important participants in corporate activities. Enterprise production can lack equipment, but it must not lack employees. Human resources should play the two roles of employee supporter and change promoter. H Company should increase the training of experienced and valuable employees, cultivate employee loyalty, and reduce employee replacement costs. H Company's corporate culture thinking is not strong, and it does not know how to establish a sense of belonging among employees. In fact, workers in the production field are the real experts of the company. They are familiar with every key point in the operation link, and are the first to discover and improve every detail problem.