Cost Reduction
COST REDUCTION
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Introduction
·
Identifying & eliminating unnecessary
costs to increase the profitability of a business
·
Cost = Labor cost + Material cost + Overhead
+ Administrative expenses + Sales expense
Strategies
of Cost Reduction
·
Cost Savings
o
Specifically identified & will be made to
a budget program
o
Implement a specific alternative in lieu of
continuing the present system
o
Result of a planned action taken by
purchasing
·
Cost Avoidance
o
That results from an initiative but do not
permit a monetary reduction
o
Addresses, reduce & eliminate the future
cost
o
Does not lower the cost of material purchased
o
Minimized the negative impact on net income
·
Cost Containment
o
Maintaining organizational cost within a
specified budget
o
Restraining expenditures to meet organizational
targets
o
Measure have been taken to reduce the
expenditure
·
Value Enhancement
o
Value which affects the whole life cost or
whole life income
o
Introducing any service to increase the value
of an organization
Scope/Areas
of Cost Reduction
·
Product
design
·
Rationalization of organization
·
Factory layout of plant & equipment
·
Production, Plan, Programme and Method
·
Marketing costs
·
Personal Costs
·
Financial Costs
Features
& Techniques of Cost Reduction
·
Features
o
Not concerned with setting targets & improving
standards
o
Corrective function
o
Applicable to every activity of the business
o
Analysis to action at all level of management
·
Techniques
o
Studies
o
Work study
o
Standardization
o
Value Analysis
o
Automation
o
Production control
o
Design
o
Quality control
o
Material cost
Video
Description
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