COST REDUCTION

“Cost cutting is no longer the

solution to sustainable profitability,
the key to success is finding creative
ways to prevent cost.”
DEFINITION

“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) Analysis
2) Examination.
3) Developing Solution.
4) Selecting a solution.
5) Obtaining agreement.
FishBone Diagram:
Areas of Cost Reduction

1. Material:
b) Design.
c) Purchasing.
d) Storage.
e) Transport.
f) Production.
7) Labour:
8) Overheads:
i) Increasing the production volume.
j) Extension of market and price differentials.
k) 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. 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 design of a product.
9. Inventory Management and Control.
Advantages of Cost Reduction
A. To a particular concern
 Improves profits.
 Improves financial position.
 Improves competitive
capabilities.
 Serves as an index of efficiency.
G. 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. Vendor consolidation.
2. Value engineering.
3. Assembly outsourcing
4. Standardization.
Precautions in
Implementations
1) Must be planned soundly .
2) Appropriate to organization.
3) Requires cooperation and coordinated efforts.
4) Reluctance should be recognized and dealt
with.
5) Programs should be clearly communicated.
6) Should not have undesirable effects on external
parties.
7) Unnecessary costs can be reduced not
eliminated.
8) Is expensive and complicated to
implement.
1. Freeze in hiring .
2. Personal awareness to
cost cutting.
3. No bonuses or pay
hikes.
4. Night home drops and
pick ups are charged.
5. Reducing off-shore
trainings.
6. Outlook comm. Used in
Place of Bharti
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
1. Shutting down older fabrication units.
2. Freeze in hiring.
3. Reduced travel expenses,using video chats
&voice chats as alternatives.
4. Reducing/reusing inventory.
5. Increasing personal awareness.
6. Avoiding discretionery expenditures.
BOMBAY DYEING
1. Introduction of new cost effective
technology.
2. Process re-aligning.
3. Re-engineering of product.
4. Restructuring of workforce.
5. Rationalising input costs.
 THANK YOU!
Smriti
Ramya
Dhilip