Cost  Reduction  Lesson

PROCUREMENT :The companies which have  greater geographical  presence or  are
multinational can  achieve better price by buying bigger volumes  instead of buying for
individual units. Central buying policies are recommended for such unit .

Bulk buying results in  annual contracts for a period of  twelve months for entire year
requirement with prices being finalised  for the entire period .


Most of the commodities  and raw material  has seasonal  cycle  of prices  as they peak and fall
in intervals .Hence we can book maximum amount of our requirement  when prices are low .

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Want to improve profits?

Beat competition ?


Try  Cost Reduction Strategies  for  Turnaround

Learn COST REDUCTION IDEAS that  would  boost  profits, cut losses and improve
productivity of the manufacturing unit whether Big ,Medium or Small   . Ideas which are easy
to understand & Implement.Each idea has potential of saving upto 20-30%.


What is cost reduction

It is broad  program where everyone is focused on reducing cost from each areas of
manufacturing activity.Cost reduction can be achieved through reduction , elimination ,
modification , substitution or innovation .All cost drivers are taken into account and with
thorough analysis the best and least cost path is adopted for each activity.The best method to
achieve results are to bench mark operating parameters to world class companies .This drives  
every One to match or even surpass these figures.


The major parameters for any manufacturing unit

  • cost per unit ($/unit)

  • man-hours/unit

  • units produced/unit time

  • break down time (%)

  • change over time ( min/hrs )

  • waste (%)

  • defectives (%)

  • fuel consumption (k therms/unit)

  • electricity consumption (kwh/unit)

  • water consumption ( kltrs /unit )

  • inventory turnover ( %)

  • lead time (min/hrs / days)


Why cost reduction


  • profits

  • waste reduction

  • increase productivity

  • competition

  • resource conservation

  • image enhancement


Where to implement cost reduction

Areas for cost reduction are

  • raw material procurement

  • logistics - inbound and outbound

  • production ( process ,time and work study,maintenance ,automation)

  • energy

  • human resource ( out sourcing )

  • sales & marketing

  • finance

How ?

In today’s  competitive world Corporates and businesses are struggling to maintain profits
and  healthy bottom lines .Cost of  production ,fuel, raw material and human resources is
rising each year . These developments has prompted people to  look for  Cost reduction
Ideas &method s.  Those who have opted for focused cost reduction  strategies have
survived those who could not managed have perished .In recent  economic down turn it
becomes more important to make  cost reduction program a major initiative in  industry .
Companies  are finding it difficult to retain people and are laying off people which is un
precedented in recent history of  industrial recession .Companies have to develop its own cost
reduction program for savings  without cutting jobs .


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