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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 successful 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.
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.
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