Cost reduction

From Wikipedia, the free encyclopedia

Cost reduction is the process used by companies to reduce their costs and increase their profits. Depending on a company’s services or Product, the strategies can vary. Every decision in the product development process affects cost.

Companies typically launch a new product without focusing too much on cost. Cost becomes more important when competition increases and price becomes a differentiator in the market.

Main cost reduction strategies

  • Supplier consolidation
  • Component consolidation
  • Re-source to low cost countries
  • Request For Quotations (RFQ)
  • Supplier cost breakdown analysis
  • Function analysis / Value analysis / Value engineering
  • Design For Manufacture / Design For Assembly
  • Reverse costing
  • Cost driver analysis
  • Product benchmarking
  • Design to cost
  • Design workshops with suppliers
  • Competitor benchmarking

Three key factors to a succesful cost reduction strategy

The design and implementation of a comprehensive cost reduction strategy should focus on three key deliverables:

1. Reducing overall operating costs

2. Improving the management of utility contracts and relationships

3. Reducing the waste generally across all departments within a business.

[1]

Five step cost reduction process

A good cost reduction company will deal directly with the client, the supplier and the client’s supplier. Please click here for more information about this. Over time Smith Bellerby have developed a five step process. Although this is not always a linear process, this is at the heart of the service. The process:

1. In-depth audit of current expenditure

2. Data analysis and market analysis/tendering

3. Presentation of report, detailing the findings and recommendations

4. Implementation of all agreed recommendations

5. On-going monitoring, query management and implementation of improved administrative procedures

Please click here to see an infographic showing the process of successful cost management between a client and the cost management company.

References

  1. ↑ http://www.smithbellerby.co.uk

http://www.smithbellerby.co.uk/glossary-52.html

    http://www.smithbellerby.co.uk/services-3.html

      http://www.smithbellerby.co.uk/why+use+us-67.html

      Barrett R. Crane, http://hdl.handle.net/1721.1/11020 "Cycle time & cost reduction in a low volume manufacturing environment", MIT DSpace
      Apichart Jearasatit, http://hdl.handle.net/1721.1/60836 "Using a total landed cost model to foster global logistics strategy in the electronics industry", MIT DSpace
      Bryan K. Parks, http://hdl.handle.net/1721.1/12092 "Cost and lead time reduction in the manufacture of injection molding tools", MIT DSpace

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