How effective are cost reduction strategies

most companies treat cost management as a one-off exercise driven by the need to manage short-term profit targets, while some of these exercises do succeed in the short term because of constant pressure from senior management, hasty cost-cutting typically goes into reverse once the pressure is removed and rarely leads to sustainable changes in costs. According to this McKinsey report, one-off cost cutting changes neither long-term process nor does it influence the way internal capabilities develop around opportunities.

A better approach is to focus on building competency in cost management rather than cost reduction. Cost management programmes tend to be more longer term but also, crucially, offer more flexibility in dealing with changing business conditions, for instance, by allowing faster response times demand level shifts and better influencing their competitive drivers.
 

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Cost reduction strategies

SAVINGS FOR PROFITS
©
BY SUBODH KUMAR SINGH

In today’s world when Corporate are struggling for profits and with fierce competition in the market, cost reductions, productivity enhancement and lean organizations have become today’s mantra s for survival.Folllowing are the key area where you can implement cost reduction methods with significant results.Cost distributions are
Raw material : 60%
Fuel: 6%
Manpower:11%
Adverisement :5%
Logistic:9%
Taxes : 5%
Maint & others : 4%
Following are major areas of
1. Raw material procurement:
a) Bulk buying
b) Opportunity buying
c) Make or buy
d) Annual Rate contracts

2. Logistics- Inbound and Outbound:

a) Route mapping
b) Loadability

3. Warehouse and Stores:
a) Low inventory
b) Space management
c) EOQ
4. Manufacturing Process (Production) :
a) manufacturing
b) Automation
c) OEE

5.Energy, fuel & Water
a) Motors
b) lighting
c) compressors
d) fuels
e) recycle
f) Waste water management
6.Information Management
Enterprise Resource management

7. Human Resources
Out sourcing





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