AREAS COVERED BY COST REDUCTION

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ORGANIZATION: - A considerable amount of cost reduction can be affected by improvement in organization. The organization can be improved by taking following steps: a) Defining each stage of responsibility. It should be ensured that there is no overlapping of duties and responsibilities. b) There should be well defined channels of communication between various management levels. c) Delegation of responsibility should be encouraged to ensure quick and effective decision making. d) Efforts should be made to implement management by objective, ie, individual objective must be in line with organizational objectives. e) Cooperation and close relationship between the various executives should be encouraged. f) Encouragement in the form of incentive etc, should be offered to the employees for coming up with suggestions leading to cost reduction.

PRODUCTION PLANNING AND CONTROL: - Production planning and control function is a very large area for cost reduction scrutiny. It covers planning, inventory control, material handling and usage, and production offering considerable scope of savings. The four principal components of cost are material, labour, overheads and capital. An efficient cost reduction plan should aim at reducing the per unit costs on these counts by examining the following points a) Whether wastage of manpower and material is kept to the minimum. b) Whether any scope is there for reducing idle capacity and increase in productivity. c) Whether efficient system of inventory, inspection and stock taking is there. d) Whether the incidence of stock losses due to pilferage, deterioration, obsolescence and other causes are at minimum. e) Whether the storage, location and other associated costs are kept to minimum and best method of production has been adopted. f) Whether production schedule can be improved to match delivery schedule. g) Whether there is any scope for reduction in indirect materials and labour costs. h) Whether there is any scope for reduction in overhead costs.

FACTORY LAYOUT AND EQUIPMENT: - an effective arrangement of plant and machinery is a fundamental requirement. A successful plant layout shall contain following features

a) Optimum use of space. b) Effective built in flexibility. c) Efficient control of work flows with least disturbances. d) Minimum material handling. e) Minimum waste. f) Work satisfaction and enhanced productivity.

UTILITY SERVICES: - utility services include power, water, steam, repair and maintenance and transport etc. the following points of consideration can lead to effective cost reduction a) Whether the utilities are supplied at economic costs or whether there is scope for any further increase in utilization. b) Whether the proper system for preventive and curative maintenance is there. c) Whether wastage and other losses in distribution have been kept to minimum. d) Whether work flow and loading factor has received due attention.

FINANCE: - the effective employment of capital in a business is of paramount importance. For example, the investment in the right machinery at the right time can yield significant cost advantages. Following points are relevant in this connection: a) Whether the methods of funding capital expenditure are cost effective. b) Whether capital is secured at economical cost; and c) Whether the capital is economically employed so as to give the maximum return.

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