Cost reduction is the process used by companies to reduce their costs and increase their profits.

Depending on a companys services or Product, the strategies can vary. Every decision in the
product development process affects cost.
Companies typically launch a new product without focusing too much on cost. Cost becomes more
important when competition increases and price becomes a differentiator in the market.

Main cost reduction strategies[edit]

Supplier consolidation

Component consolidation

Re-source to low cost countries

Request For Quotations (RFQ)

Supplier cost breakdown analysis

Function analysis / Value analysis / Value engineering

Design For Manufacture / Design For Assembly

Reverse costing

Cost driver analysis

Product benchmarking

Design to cost

Design workshops with suppliers

Competitor benchmarking

Three key factors to a successful cost reduction strategy

The design and implementation of a comprehensive cost reduction strategy should focus on three
key deliverables:
1. Reducing overall operating costs

2. Improving the management of utility contracts and relationships

3. Reducing the waste generally across all departments within a business.
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Five step cost reduction process

A good cost reduction company will deal directly with the client, the supplier and the clients supplier.
Please click here for more information about this. Over time Smith Bellerby have developed a five
step process. Although this is not always a linear process, this is at the heart of the service. The
process:
1. In-depth audit of current expenditure
2. Data analysis and market analysis/tendering
3. Presentation of report, detailing the findings and recommendations
4. Implementation of all agreed recommendations
5. On-going monitoring, query management and implementation of improved administrative
procedures
Please click here to see an infographic showing the process of successful cost management
between a client and the cost management company.

References[edit]
1.

Jump up^ http://www.smithbellerby.co.uk

http://www.smithbellerby.co.uk/glossary-52.html
http://www.smithbellerby.co.uk/services-3.html
http://www.smithbellerby.co.uk/why+use+us-67.html
Barrett R. Crane, http://hdl.handle.net/1721.1/11020 "Cycle time & cost reduction in a low volume
manufacturing environment", MIT DSpace
Apichart Jearasatit, http://hdl.handle.net/1721.1/60836 "Using a total landed cost model to foster
global logistics strategy in the electronics industry", MIT DSpace
Bryan K. Parks, http://hdl.handle.net/1721.1/12092 "Cost and lead time reduction in the manufacture
of injection molding tools", MIT DSpace