“Cost cutting is no longer the solution to sustainable profitability, the key to success is finding creative ways to prevent cost.”

“Cost reduction is to be understood as the achievement of real and permanent reductions in the unit cost of the goods manufactured or services rendered without impassing their suitability for the use that is intended”- ICWA London.

Achieving the goals of cost reduction
 

Reducing the cost per unit. Increasing productivity.

How to reduce cost?
    

Elimination of waste Improving operations. Increasing Productivity. Cheaper materials. Improved Standards of Quality.

Cost Reduction Process
1) 2) 3) 4) 5)

Analysis Examination. Developing Solution. Selecting a solution. Obtaining agreement.

FishBone Diagram:

Areas of Cost Reduction
1. b) c) d) e) f) 7) 8) i) j) k)

Material: Design. Purchasing. Storage. Transport. Production. Labour: Overheads: Increasing the production volume. Extension of market and price differentials. Size of business units.

4.Outsourcing 5.Sales and marketing 6.Energy 7.Production

3 dimensions of Cost reduction
1)Internally driven: -Keep improving processes
-Employee suggestion programs

2)Externally driven :
-Top of the technology and process

3)Competitor driven:
-Benchmarking against competitors -Real time data

Implementing Cost reduction program
 

Set realistic goals Develop cost reduction program consulting all Do an ROI analysis Explore all options, not only BPR/technology(consider offshoring and outsourcing

 

Tools and Techniques of Cost Reduction
1. 2. 3. 4. 5. 6. 7. 8. 9.

Value Analysis. Work Study. Job Evaluation and merit rating. Quality Control. Economic Order Quantity. Use of Better Technology. Standardization. Improvement in the design of a product. Inventory Management and Control.

Advantages of Cost Reduction
A.   

 G. 

To a particular concern Improves profits. Improves financial position. Improves competitive capabilities. Serves as an index of efficiency. To the Industry One company serves as a trend setter for the other companies.

C. To the Nation  Efficient utilization of Scarce Resources .  High taxes can be levied by the government.  Retaining the markets and gaining new buyers.  Combating inflation.

Cost reduction in materials in Manufacturing setup.
1. 2. 3. 4.

Vendor consolidation. Value engineering. Assembly outsourcing Standardization.

Precautions in Implementations
1) 2) 3) 4) 5) 6) 7) 8)

Must be planned soundly . Appropriate to organization. Requires cooperation and coordinated efforts. Reluctance should be recognized and dealt with. Programs should be clearly communicated. Should not have undesirable effects on external parties. Unnecessary costs can be reduced not eliminated. Is expensive and complicated to implement.

1. 2. 3. 4. 5. 6.

Freeze in hiring . Personal awareness to cost cutting. No bonuses or pay hikes. Night home drops and pick ups are charged. Reducing off-shore trainings. Outlook comm. Used in Place of Bharti


2. 3. 4. 5. 6.

The share ownership plan discount scrapped Reducing work hours for trainees. Delay in freshers joining the company. WFR carried out. Paycut of 5%. Annual shutdown of a week extended to a fortnite

1. 2. 3.

4. 5. 6.

Shutting down older fabrication units. Freeze in hiring. Reduced travel expenses,using video chats &voice chats as alternatives. Reducing/reusing inventory. Increasing personal awareness. Avoiding discretionery expenditures.

1. 2. 3. 4. 5.

Introduction of new cost effective technology. Process re-aligning. Re-engineering of product. Restructuring of workforce. Rationalising input costs.

Smriti Ramya Dhilip

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