Methods of Cost Reduction

The possibilities of reducing the cost of a product in the applications of cost reduction  methods. The lines of approach in laying out a cost reduction plan are suggested below :

(a) Product Design:- Cost reduction starts with the design of the product. Product design being first step in manufacturing of a product, the impact of any economy or cost reduction effected their stage will be felt through out the manufacturing life of the product. Design is therefore the most important field where cost reduction may be attempted. Efficient designing for a new product or improving the design for an existing product, reduces cost in the following manner :-
(i) Material Cost:- Cheaper substitute, higher yield and less quantity and varieties of materials, cause reduction in cost.
(ii) Labour Cost :- Reduced time of operation and increased productivity reduce cost.
(iii) Cost of gigs, tools and fixtures are to be minimised.
(iv) Standardisation and simplification in variety increases productivity and reduces costs.
(b) Organisation :- It is not possible to measure the extent of cost reduction resulting from an improvement in organisation nevertheless, economies are bound to be achieved if the following considerations are looked into :-
(i) Definition of each function and responsibility.
(ii) Proper assignment of task and delegation of responsibility to avoid overlapping
(iii) A suitable channel of communication between various management level.
(iv) Co-operation and closed relationship between the various executives.
(v) Removal of doubts and fiction.
(vi) Encouragement to employees for cost reduction suggestion.
(c) Factory Lay Out Equipment :-
A cost reduction programme should study the factory layout and the utilisation of the existing equipment to determine whether there is any scope of cost reduction by elimination of wastage of men, materials and maximum utilisation of the facilities available.
The necessity for replacement of Plants, introduction of new techniques or expansion of facilities should be considered and various alternative explored with a view to reducing costs.
(d) Production Plan Programme and Method:-
Production control ensures proper planning of work by installing and efficient procedure and programme ordering correct machine and proper utilisation of materials, manpower and resources so that there is no waste of time and money due to wait for components, men, material etc. An efficient cost reduction programme should examine the following points relating to production control.
(i) Whether wastage of manpower and material is kept to the minimum
(ii) Whether there is any scope for reducing idle capacity.
(iii) Whether the procedures for the control of stores and maintenance services are efficient.
(iv) Whether labour wastage may be reduced and productivity increased by eliminating faulty
production method, plant layout and designs or introducing incentive schemes.
(v) Whether there is scope for reduction of over head, whether a budgetary control system is in operation to ensure the control over overhead costs.
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