CHAPTER I

Introduction
Almost every organization in the world today is looking at ways to
Reduce costs. Some companies can do this fairly simply by
Closing factories or giving top-down targets to all relevant departments
(Costs to be reduced by 20%). Other companies feel that they require a
More fundamental approach and restructure the way that they do their business.
Sometimes this includes a strategic review of which products and services
Should be offered to the market, other times the markets served
Are seen as stable. In the second case there is usually need to fundamentally re-assess
how the products / services are brought to market in order to radically
decrease the costs and/or to improve service levels. .,
Business managers and owners are responsible for a variety of tasks and functions.
Important business functions may include reducing costs from wasted inputs, the
1

inefficient use of resources or too many employees working on too few projects. Cost
cutting measures often start in the company's accounting department, which is
responsible for tracking and reviewing important financial information. Cutting costs is a
common way companies improve profits and cash flows from business operations.
Cost reduction is an important factor in improving the state of a business. It can obviously
result in higher profits and a stronger enterprise. Most business leaders and managers would
like to reduce costs, but many find it difficult to do the right things.
Following are major areas of Cost Reduction :
One of the main responsibilities of a management is to find out the areas in which the
excess costs may be reduced. Following are the main cost reduction areas:

l. Product Improvement
* Quality of a product
* Wastage minimization
* Proper designing of a product

2. Production Method and Layout Management

* Material handling system
* Layout management
* Time and motion study
* Standardization
* Modernization of plants and equipment's

3. Marketing Areas
* Distribution channels
2

* Advertisement media
* Promotional Schemes
* Packing styles
* Transportation arrangement

4. Administrative and Financial Areas

* Purchase of supplies
* Reward punishment system
* Accounting system
* Financing alternatives

Methods
Mapping :

Select and Map a product line/process

Observe & analyse
Quantify waste
Identify opportunities for improvement
Agree improvement plan

Implementation:

Implement plan
Remove waste
Reduce cost
Free Up Capacity

Cost Reduction Ideas & Strategies

In the current economic climate most organisations are looking for practical ways to reduce
their expenditure. There are number of steps any business can take in the short to medium
term and heres our top ten cost reduction ideas.
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Telecoms
Since the telecoms market became deregulated theres plenty of competition for your
business! You should easily save
10% off your line rental if youre with a big brand provider and often more on call charges.
Remember to compare like for like rates and consider the length of contract youre entering
into.
Printing
Lose those desktop printers. Install MFDs (Multi Functional Devices) that can photocopy,
scan, print and fax. Your overall hardware costs will reduce and running costs will drop by
taking a CPC (cost per copy) contract, rather than paying out for maintenance and
consumables.
Office Stationery
Consolidate your suppliers and invoices. Buying from one source will increase your
negotiating power and using a buying group will increase this further. Monitor your own
usage and limit the number of people who have the authority to reorder stock. Using own
brand products can also save up to 25%.
Utilities
Many businesses have never compared their gas and electricity providers and are missing out
on potentially huge savings for very little effort. Go through a broker as they will be able to
access a wider range of tariffs. If youre still in a contract ensure that you know when to give
notice to your current suppliers, many will only offer small window before rolling you into
another long term deal.
Go Green
Set the default printing function on all your office PCs to print mono and on both sides of the
pages. Office paper is one of the single biggest costs and by taking this action you could not
only reduce your paper costs by up to 50% but avoid paying for colour copies, often about 10

times the cost of Black & White! Turning off monitors, lights and electrical devices when not
in use will help save money and the environment.
Outsourcing
Outsourcing non critical functions can potentially result in substantial savings. IT, HR and
Finance are the main areas that usually come under review, but depending on your industry
you may be consider outsourcing manufacturing, distribution, marketing or customer
services.
Banking
Review your bank charges! Remember these are not fixed in stone and there are a number of
areas where banks profit from your business. What interest rates are you being charged and
what are you receiving for any accounts in credit? Many banks have different levels of online
systems and paying a higher monthly fee to use these systems could result in a lower cost
overall through reduced transactional fees.
Business Rates
Your business rates can be challenged every five years. Dont assume that the rates wont
change; you can challenge this yourself or go through specialist consultants. If you use a
consultant make sure they dont charge an upfront fee and that any charge only relates to
savings they make.
Capital Allowances
Its estimated that the capital allowance tax relief that businesses are entitled to hasnt been
claimed on 95% of commercial premises in the UK! Imagine that, literally miions of
pounds remain unclaimed. Capital allowances are a valuable form of tax relief available to
anyone buying or building commercial property. As a business you can claim these
allowances, deduct a proportion of them from your taxable profits and reduce your tax bill.
Fixed Cellular Terminals (FCTS)
FCTs are essentially a mobile device that allows fixed telephony devices such as PBX
Telephone Systems to connect directly to the GSM Mobile Phone Network. This can be used
5

to call other mobile users at reduced rates (depending upon available tariffs) or for use in
remote offices where no fixed line services are available (e.g. building site / remote
monitoring post). In an age where the landline to mobile calls are dramatically increasing for
businesses FCTs can offer the potential of reducing these charges to around 3ppm which is a
staggering saving when compared to competitive fixed line charges of around 7-8ppm
currently in the market.

CHAPTER II

What is Cost Reduction?

Cost reduction is the process used by companies to reduce their costs and increase
Their profits. Depending on a company's services or Product, the strategies can vary.
However, it is important to remember that 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.
Cost reduction, should therefore, not be confused with cost saving and cost control. Cost
Saving could be a temporary affair and may be at the cost of quality. Cost reduction
Implies the retention of essential characteristics and quality of the product and thus it
Must be confined to permanent and genuine savings in the costs of manufacture,
Administration, distribution and selling, brought about by elimination of wasteful and
Inessential elements form the design of the product and from the techniques and practices

Carried out in connection therewith.

In other words, the essential characteristics and techniques and quality of the products are
Retained through improved methods and techniques used and thereby a permanent
Reduction in the unit cost is achieved. The definition .of cost reduction does not however
include reduction in expenditure arising from reduction or similar action or the
effect of price agreements.

The three fold assumption involved in the definition of cost reduction may be
summarized as under :

1. There is saving in a cost unit

2. Such saving is of at permanent nature
3. The utility and quality of goods remain unaffected if not improved.

ICWA LONDON
"Cost reduction is to be understood as the achievement of real &permanent reductions in
the unit cost of the goods manufactured or services rendered without impassing their
suitability for the use that is intended".

SCOPE OF COST REDUCTION :

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The scope of cost reduction is wide and it could be applied to wherever cost is incurred.
In many organizations the cost of human resources is very high. The top management
should find ways by which the cost of human resources is reasonably reduced. Any
abnormal reduction of cost in this regard may lead to unfavorable climate. In autocratic
type of climate the human resources cost will be reduced since the employer is not so
particular about keeping the morale of the employees high and to motivate them for
higher productivity. Since better performance is ensured through fear, threat, punishment
and occasional rewards, there is no need for spending on welfare cost.
Cost reduction is attainable in almost all areas of business activities. There is perhaps no
situation which cannot be improved. It covers a wide range like new layout, product
design, production methods, materials and machines in factories as well as in offices,
innovation in marketing etc. it may also extend to specified activities like purchasing,
handling, packaging, shipping, warehousing, marketing, use of administrative facilities
and even the utilization of financial resources.
Excessive cost may result in every organization from:

Lack of information about raw material, processes, products, components etc.

Lack of utilization of ideas generated form performance and economic analysis.
Honest but wrong beliefs that certain things are impossible for achievement.
Temporary circumstances like features developed under pressure or modification
made to meet certain circumstances.
Habits and attitudes of confining to one conventional method.

It is not necessary for the management to proceed in any specific sequence in considering
the various aspects of cost reduction and it may be necessary to start the campaign in
more than one direction at the same time.

ADVANTAGES OF COST REDUCTION

The advantages accruing form cost reduction can be discussed under the three heads:l. In so far as Individual capacity is concernedo cost reduction helps in profit
improvement. The more the profits, the more the stable the company becomes. It
9

enhances the share value, improves investment opportunities and facilitates the
collection of capital.
2. The society will be benefited by the reduced prices which may be possible by
savings form cost reduction programs. Competitive position will improve and the
industry as a whole will strive to improve the productivity and pass on the
advantage of such programs to the society. Workers and staff of the industry may
also be benefitted through increased wages and improved staff welfare amenities.
3. The country also stands to gain immensely by the cost reduction programs.
Industry will be able to maintain the international parity in prices of exportable
commodities and consequential increase in export will result in increased foreign
exchange savings. Also internal revenue will increase through more tax savings.
The cost reduction benefits of aligning these functions can result from:

A tighter cohesion between the finance and risk functions, which delivers
higher cost savings, use of shared resources and delivery models;

Reducing reputation risk exposure;

Centralizing well-structured information that features transaction level detail;
Reducing effort and duplication in gathering, checking and repairing data;
Increasing operational efficiency by putting in place reliable standard controls and
assessment criteria.
Lower infrastructure costs compared with building and supporting separate platforms;
Eliminating IT system/process redundancy - increasing transparency, giving data
architecture higher visibility, and enriching reporting and management information;
Rationalizing financial and risk processes and greater streamlining across the
whole of the business to improve the integrity of performance measures.

10

CHAPTER III
COST REDUCTION vs. COST CONTROL
Cost control is operated through setting standards of targets and comparing actual
performance therewith, with a view to identify deviations from standards or norms and
taking corrective action in order to ensure that future performance conforms to standards
or norms.
Cost reduction is a continuous process of critical cost examination, analysis and
challenge of standards. Each aspect of business viz., products, process, procedures,
methods, organization, personnel, etc. is critically examined and reviewed with a view of
improving efficiency and effectiveness and reducing the costs.
Cost control lacks the dynamic approach which planned cost reduction demands. In cost
reduction, standards which are the basis of control are constantly challenged for
improvement.
This process finds out the substitute by finding new ways or methods. This process
undertakes the competitive analysis of actual results with established norm sunder this
process necessary step are taken for further modification in the method. Under this process
the variances are appraised and necessary course of action will be taken to revise norms,
standards etc. It challenges the standards forth - with and attempts to reduce cost on
continuous basis .It starts from established cost standards and attempts to keep the costs
of operation of a process in line with those standards. The emphasis is partly on the
present costs and largely on future costs. The main stress is on the present and past
behavior of costs.
It is universally applicable. It should be applied to every area of business. It does not depend
on standards through target amounts may be set. It has limited applicability to those
items of costs for with standard shave already been set. The items for which standards are
set mainly relate to productive operations Cost reduction is a corrective function. It
operates even when efficient cost control system exists Cost control is a preventive function.
Costs are optimized before they are incurred.

11

Steps in Reducing Cost and Increasing Profits

For most small businesses, the easiest way to increase profitability is to reduce costs.
Reducing direct costs can dramatically increase the profit on each sale, and eliminating
unnecessary business overheads can have an immediate pleasing impact on your bottom
line.
The best way to improve profitability is to increase turnover as there is no limit to sales
but there is a limit on reducing your costs.
Reducing your costs:
Identify the steps you can take to minimize your direct costs, such as negotiating lower
prices with your suppliers, reviewing processes and systems to minimize wastage, and
implementing additional security to reduce the chance of theft.
For example, the owner of one manufacturing business used the same supplier for 30
years, and never investigated buying raw materials from anyone else. When the business
was sold, the new owner put all the main purchase requirements out to tender. The result
shaved 14% off the company's inventory costs or close to $100,000.
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Most businesses tend to stick to the same supplier year after year, so this is an area well
worth exploring. Costs that could be put out to tender in your business include insurance,
power, telephones and internet.
The value of good systems:
Introducing systematic procedures and methods will help reduce costs. Good systems
will help you minimize errors, and reduce time and money.
The time invested in creating systems is usually minimal compared with that spent
solving a problem from scratch. Where appropriate, turn decisions into policies to avoid
having to make the same decision again or sort out the same issues.
Learn from mistakes and problem areas, and if systems go wrong, fix them. It's a good
idea to review your systems periodically to see where improvements can be made. A
software company placed all of their information centrally on their server, so that staff
could access information all the time, from anywhere. The owner found each employee
saved five hours a week, which could be applied more productively.
Keep focused:
Focusing management awareness on profitability can have a dramatic impact. Even if
cash flow is your top priority, this should not be at the expense of profitability.
Make sure all your employees are aware of the importance of profitability. The most
commonly used key performance indicators are actual sales against forecasts, costs
against budgets, gross margin and staff costs. Get help from your accountant to ensure
you're monitoring the right indicators for your business.
Your team:
Monitor and measure employee performance and productivity, and reward productive
employees by linking pay to effectiveness. It's important to praise and thank staff when
it's due, and provide a clear career path so they can grow and don't see their prospects as
limited.
Continuous improvement:
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A simple planning cycle greatly enhances your ability to make continuous improvements.
Good planning also helps you to anticipate problems. and adapt as circumstances change.
Set measurable, time-limited targets to monitor how effectively your plans are
implemented. Then review what you've achieved so you can learn from your experience
and make continuous improvements. Keep improving the underlying systems and the
planning process itself, but be ready to alter your strategy if necessary.
Apply lessons business-wide:
Set up systems that encourage the communication of best practice in your business. For
instance, benchmarking different parts of the business against each other can be a useful
way of sharing best practice.
Also improve communications with your customers and suppliers - they can offer useful
tips and advice. Your customers will be aware of any problems and can tell you what you
need to improve.
Increasing your turnover:
Below are some possible tactics to improve your turnover:

Invest resources in increasing your sales volume.

Look for new markets and distribution channels. For instance, are you really making
the best use of the internet? Can you form a strategic alliance with a complementary
business or a joint venture to tackle work you don't have the resources for on your

own?
Actively sell. Don't just take orders. Businesses that are content to simply take orders
are less likely to survive, let alone grow.

Retain existing customers through good service and explain to your staff why the

lifetime value of customers makes this effort worthwhile.

Review your credit limits if sales to a particular customer go up significantly and
consider a credit check. If they are stable and worthwhile customer, increase their

limit or find out what else you can do for them.

Maximize the value of your sales. Consider moving upmarket and providing a
premium

14

product and service. Add features to products if the perceived value to the user is
greater than the cost to you.
Keep your product or service up-to-date. If appropriate, extend your product range or
work to ensure it stays ahead of the competition.
Compare your price and quality with competing products or services. Aim to charge a
full price and offer value for money from the extras you provide, such as after-sales
service, installation and training or bundled extras.
Focus your efforts on your most profitable customers. Look after the customers who
place large or frequent orders, pay the full price on time and are low maintenance.

Review your profit margins:

Businesses that offer a menu of products can use a simple technique to improve overall
profitability. This involves reviewing sales and profit margins periodically, and dividing
products into four categories:
1. High percentage of sales and high profit margins - nurture these stars.
2. High percentage of sales but low profit margins - consider a price increase and
examine how you can cut costs to increase your profit margins.
3. Low percentage of sales but high profit margins - consider a sales push.
4. Low percentage of sales and low profit margins - eliminate these where possible.

15

CHAPTER IV
Cost Reduction Techniques

Cost reduction strategies are geared towards generating substantial revenue from
preexisting elements without making additional sales. The process identifies profitable
procedures already in place and optimizes procedures to maximize profitability. Cost
reduction enables businesses to identify their current needs, forecast future sales, and
understand the factors that help or prevent their products from selling. A successful cost
reduction strategy includes the entire organization and all levels of management.

Analyze Supply and Demand:

One needs to analyze supply and demand in order to effectively lower supply costs and
increase productivity in your organization. Work with the sales team reviewing sales
figures from the past several years, forecasting sales for the next three months based on
consumer confidence, past sales, acquisitions, and merges. Keep in mind external
variables such as weather, the economy, holidays, and national events. Repeat the process
each quarter, refining forecasts as necessary. A good cost reduction strategy requires
businesses to stay one step ahead of the consumer.

Learn and Shop Smart:

Supply costs vary depending on the time of year, market demand, manufacturer supply,
and industry variables. Reduce supply costs by shopping around to find the best deal on
office supplies, production equipment, and raw materials. Utilize bargain hunter services
to find the best prices on electronics and every day equipment. Consider hiring a
16

procurement officer to monitor and maintain supply levels, as their training and
knowledge are invaluable assets to your organization. Ensure that the decision makers
within the company know how to find the best prices by using a variety of tools and
resources. Monitor changes in pricing, purchasing the products when the price is
historically low.

Minimize Transactional Costs:

A great deal of business revenue is depleted by payment processing companies, such as

PayPal and credit card companies. Encourage cash-based transactions such as check,
money order, and cash, Form partnerships with processing authorities and choose a plan
that is cost effective for your organization. Streamline the purchasing process by using
auto-generated purchase orders and advanced notification systems. Additionally, you can
automate the shipping and receiving procedure by using electronic metered postage and
bulk discounts where applicable. Review your PO history as part of your cost reduction
strategy at the end of the year, creating notifications for the New Year regarding
commonly ordered products. An example would be the acquisition of raw materials for a
seasonal product.

Manage and Optimize Inventory:

Enhance your cost reduction efforts by monitoring inventory on a weekly basis, noting
the exact supply levels of each item in the warehouse. Internal inventory management is
cost efficient, however; larger companies may find external inventory management a
viable option. Create an automated system to automatically order new supplies, which
reduces back office labor expenses. Improve efficiency and maximize space by
organizing inventory supplies and modifying the layout of the room or warehouse. Keep
17

the aisles free of debris and narrow, with enough room for handcarts, forklifts, or other
equipment. Consider liquidating products that are expiring soon or have a history of poor
sales.

Reduce Lead Times:

When a product arrives at the warehouse it inevitably takes several days for it to reach the
customer. Review and refine your receiving protocols to ensure products hit the shelves
with minimal delay by maintaining adequate order supply rates and throughput levels.
Consider rationalizing SKUs by removing inappropriate products from the shelves.
Maintain optimal levels by reducing safety stock inventory and increasing order fill rates.

Utilize Bulk Discounts:

Contrary to some business sustainability policies, buying select materials in bulk reduces
supply costs and increases productivity by lowering human interaction. Every company
orders certain supplies more than other products. Consider purchasing non-perishable
items with long shelf lives in bulk to reduce supply and labor costs. Ordering items less
frequently reduces the costs associated with placing orders and saves money by lowering
the cost per unit. Before placing the order, ensure the savings per unit are worth the risk,
given current market demands. Never purchase more than one year's worth of inventory
at one time, ensuring the warehouse has the ability to hold the products without finesse.

Reduce Shipping Charges

18

Cost reduction strategies require advanced planning and efficient spending; thus it is
essential to order supplies well in advance to reduce shipping costs. After attempt to purchase
items in large groups based on the manufacturer or vendor to save on freight charges,
utilizing merge-in-transit techniques to reduce transit times. When shipping to
consumers, utilize bulk discounts by shipping multiple quantities of the same item.
Choose carriers and form partnerships with them to reduce shipping charges. Order
inventory early to avoid rush-processing charges and expedited delivery fees, which add
up quickly for bulk orders.

Collaborate with Suppliers :

Your vendors are your best allies when implementing cost reduction strategies within
your organization. Consider a variety of programs, such as vendor managed inventory
systems (VIM), vendor stocking programs (VSP), and common supplier joint
procurement policies. Choosing a VSP reduces inventory costs for less popular items and
increases supplier reliability and dependency. Alleviate the nightmare of managing
2L
inventory by giving the responsibility to the vendor, which reduces your inventory and
related expenses.

Ask for Employee Suggestions:

Employee suggestions play a vital role in cost reduction and increasing productivity
19

because employees have more experience regarding daily operations in a business. Every
suggestion that your business implements improve your business in some way.
Performance may be improved, customer satisfaction may increase, costs reduce, or some
other positive impact improves your business in some way. The average employee
suggestion saves the company $6,224 in operational expenses. The more ideas you
implement the more your business will improve. These suggestions will add up over time
and can be used as a competitive advantage.

Eliminate Paper Flow:

Another great way to improve productivity while lowering costs is to eliminate paper
flow. The average office worker prints 10,000 sheets of paper ayear. The best approach
is to place all documents online for employees to download, read, and make changes to.
Also, instruct all employees not to print e-mails and other unnecessary documents that
Will usually end up in the trash upon a few quick glances. Have IT set all printers to print
doubled sided.

Example of Cost Reduction Techniques

Six typical cost reduction examples: raw materials and supplies; water and waste water;
energy; waste management; transport and travel; and packaging.

20

1. Raw materials and supplies:

The following are the most frequently used measures with the greatest cost cutting effect
in the materials and auxiliary materials sector:
Environmental optimization of products and changes in production processes to reduce
material input, in particular for material which is hazardous for the environment
Recovery of production residues and return of used products, recycling them directly
for new products.
An example from Louis Leitz International GmbH & Co. (office supplies):
Uses of recycled injection die casting granulate (savings: DM 450,000).The manufacture
of plastic articles using injection die casting technology gives rise to small quantities of
waste, which previously went to the recycling industry. A crusher has been installed in
order to return this waste material directly into the production process, after transforming
the waste material to a granulate. The granulate obtained in this way can be added to the
production process without impairing product quality. The savings are about220,000
kilograms of new injection die casting granulate per annum. As the cost of making the
granulate is TSY below the cost of new material, this reduces purchasing cost by DM 418,000 per annum. It also eliminates the disposal charge for used plastic. Waste disposal
costs were thus reduced by about DM 32,000 per annum.
Total savings were DM 450,000 per annum. The amortization period for the crusher plant
was just one year.

2. Water and waste water:

21

The following are the most frequently used measures with the greatest cost cutting effect
in the water/waste water sector:
Establishment of water recycling circuits, mostly in connection with cleaning
operations, to allow process water to be used several times in the production process.
Replacement of water-intensive processes by new technologies which require only
small quantities of water or do not use water at all.
Example from Siemens Nixdorf Information system AG (electronics):
Water recycling circuit in electroplating (DM 714,000).4 closed-cycle rinsing water
system was established in electroplating. The system includes mechanical filters and an
ion exchanger for contaminant removal before the water is reused for rinsing.
Related to total water consumption, about 70% of the water is retained in the cyclical
system, which means savings of some 140,000 m2 of water per annum (DM 714,000).
The inveslment in the closed-cycle system and the ion exchanger was DM l.l million,
giving a payback period of about l_ years.

3. Energy:

The following are the most frequently used measures with the greatest cost cutting effect
in the power sector:
Use of combined heat and power systems (CPH) in companies having a high demand
for electricity and process heat.
Energy management system, i.e. including all energy flows and individual solutions
22

based on this.
Use of waste heat from machines, cooling water, etc., for space heating or process preheating.
Je Control of machines, heating, lighting, air-conditioning, etc., closely matched to needs.
This avoids idle time and saves energy.
Example from Grammer AG/Grammer Biirosttihle GmbH (office furniture):
"Energy Commissioners" identify saving potentials (DM62,000).The appointment of
"Energy Commissioners" enabled this company to achieve economies of about 9Yo on
power in the 1995 to 1996 period, with consequent savings of some DM62,000.
Individual measures included:
Switching off machinery during breaks.
Replacement of the central compressed air system by small compressors, thus
permitting shutdown wherever compressed air is not required.
Identification and elimination of leaks in the compressed air system. Separation of
power supplies to the individual production areas, thus making it possible to disconnect
each area individually.

The return rate is more than 80%, This means each packaging set can be re-used more
than seven times. The reduction in wood consumption is more than 90%. There are
further reductions in the waste and energy sectors. The cost saving with this re-usable
packaging system is about DM2.2 million per annum.

Main cost reduction strategies

Supplier consolidation

Component consolidation
23

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

24

CHAPTER V

Summary
The cost reduction examples given here, and the others cited in the book, Reducing Costs
through Environmental Management, are characterized by some common points among
the companies involved:
High priority is given to environmental protection.
Environmental protection is firmly established in company organization, with clearly
defined responsibilities and contact persons.
Environmental guidelines and goals are clearly defined.
More than half these companies are validated/certified (at least at some plants) in
accordance with the EMAS (EU's Eco-management and Auditing Scheme) or ISO 14001,
or intend to obtain these qualifications in the near future.
In Know-how is disseminated rapidly and effectively'by inter-company exchange of
experience, as organized by member associations of INEM, e.g. B.A.U.M. in C.
and KOVET in Hungary.
This exchange of experience is very important, especially to enable small and mediumsized businesses to achieve savings.

25

Suggestions

Many companies have taken rapid and sometimes significant cost cutting action to help
survive the worst of the recession. However, the forthcoming period of potential recovery
may still feel like a recession and is likely to remain just as tough.
Half dead, half alive zombie consumers depressing demand. Zombie banks and
governments are unable to lend or stimulate demand, and low cost economies are creating
strong competitors and constraining future price rises.
Each sector will be impacted differently but many companies in the UK and across
Europe will now need to formulate a plan to remain competitive and rebuild their profit
without raising prices or relying on significantly increasing revenues.
This will call for a new wave of cost management - not to find short term fixes and cost
cutting but to uncover a wholly more efficient and low cost way of delivering value to
customers.
Companies that achieve this can create a platform for a higher level of performance to
take them through the immediate economic constraints and give them a platform for short
term growth through increasing market share and long term growth as demand rises in the
future.
There are three key steps that companies can follow:.
Refocusing on what the customers really value: by re-examining the goods, services
and propositions that are offered. Through checking how existing goods and services
meet changing customer requirements there is the opportunity to re-designing those

26

offerings so that they cost less to produce and deliver changing the operating model: by
looking at new, lower cost operating and delivery
models. This can be achieved by considering channels to market, new distribution and
production partners, and new internal operating model which focus on the goods and
services you know your customers want
Driving ruthless internal efficiency: by stopping any activity that does not add value:
companies should uncover inefficient end to end delivery processes right across the
supply chain; drive out waste and the cost of failure, maximize the use of the capacity of
all resources; and seek new value by exploring sourcing options for services and
components
Relationship should be maintained to decrease labor turnover. The royalty on mining
aggregate should be reviewed from time to time and steps have to be taken for reduction
in above cost. The overhead cost per ton has decreased slightly during a period 2007-10'
This is due to a reduction in the factory overheads and control overheads' Even though
selling and distribution cost have increased slightly have no effect on the overhead
reduction but it effect on increase in rate of final product. The salaries and wages
have decreased slightly during a period z0o7-10. This is due to a reduction in the
factory overheads and control overheads. Even though administration and other
charges have decreased slightly have no effect on the overhead reduction' Even
though own generation cost has increase it has no effect
over Overall power consumption cost'.

27

Conclusion
'Quick Fix' approaches generally do not work. When fewer people do more of the same
work will deteriorate productivity, quality and morale with serious consequences. Costly
errors quickly offset savings in the short-term and lack of innovation erodes
competitiveness in the long-term. Successful cost-reductions require deep-rooted change,
a redesigned cost structure, efficient processes and systems, and skilled people to
develop, implement, and sustain them.
The decision on whether or not an organization should outsource a part of their business
is a complicated one, and should not be taken lightly. Searching for short-term cost
savings is not a bad idea, but choosing outsourcing based solely on cost reduction or
tactical problems are a short-term solution and will undermine a company's potential for
long term success. The organization should have sufficient management skills and the
ability to adapt new behaviors and processes to successfully manage an external part of
their business. These skills should include knowledge management abilities and a
willingness to apply them to a new and more challenging situation. Tacit knowledge must
specifically be considered when planning an outsourcing strategy, particularly if the
component of the business to be outsourced already exists internally and valuable
institutional knowledge will be lost. The transfer of tacit knowledge can have a profound
effect on quality and overall strategic business value. Cultural and language barriers add
challenges to the already difficult process of transferring tacit knowledge and are of
particular concern in cases of cross-border outsourcing.

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