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Cost Reduction
Cost cutting is no longer the solution to
sustainable profitability, the key to success is
finding creative ways to prevent cost.
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DEFINITION OF COST REDUCTION
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.
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Achieving the goals of costreduction
Reducing the cost per unit.
Increasing productivity.
Create cash for reinvest in research and development
Reduce manufacturing costs to stay competitive
Reduce costs as a nonprofit so able to serve more people Lower costs of service in order to provide additional
services
To become more efficient
To prevent employee lay-offs
To prevent reduction in employee benefits
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How to reduct the cost?
Elimination of waste
Improving operations.
Increasing Productivity.
Cheaper materials.
Improved Standards of Quality.
Across the board reductions
Prioritized reductions
Departmental reductions
Reductions based on professional assessment
Budget reductions
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Cost Reduction Process
Selecting asolution
Obtainingagreement Analysis
ExaminationDevelopingSolution.
CostReduction
Process
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FishBone Diagram
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Areas of Cost Reduction
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1. Raw Material procurement:
Design. Purchasing.
Storage.
Transport.
Production.(Process ,time & work study, maintenance ,automation)
2) Labour : Human Resources ( out sourcing)
3) Overheads:
Increasing the production volume.
Extension of market and price differentials. Size of business units.
4) Energy
5) Sales and marketing
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Com an Lo o
3 Dimensions of Cost reduction
1. Internally drive:
Keep improving processes
Employee suggestion programs
2. Externally driven :
Top of the technology and process
3)Competitor driven:
Benchmarking against competitors
Real time data
Cost
reduction
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Cost reduction
Set realistic goals
Develop cost reduction
program consulting all
Do an ROI analysis
Explore all options, not
only BPR/technology
(consider offshoring and
outsourcing
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T l d T h i f C t
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Tools and Techniques of CostReduction
1. Value Analysis.
2. Work Study.
3. Job Evaluation and merit
rating.
4. Quality Control.
5. Economic Order Quantity.
6. Use of Better Technology.
7. Standardization.
8. Improvement in the designof a product.
9. Inventory Management
and Control.
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Advantages of Cost Reduction
A. To a particular concern :
Improves profits - financial position competitive
capabilities.
Serves as an index of efficiency.
B. 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.
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C t d ti i t i l i
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Cost reduction in materials inManufacturing setup.
1. Vendor consolidation.
2. Value engineering.
3. Assembly outsourcing
4. Standardization
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HP COMPUTER
1. The share ownership plan discount scrapped
2. Reducing work hours for trainees.
3. Delay in freshers joining the company.
4. WFR carried out.
5. Paycut of 5%.
6. Annual shutdown of a week extended to a fortnite
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LOGO
Librio Group