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  Fields of Cost Reduction Programme

Fields Covered by Cost Reduction Programme

The following are the particular areas that are covered by a cost reduction programme:

(a) Product Design:

Designing the product is a requirement to its production. So It is essential that proper care is provided to designing the product to influence economies in the cost of labour, materials, tools and equipment. The method of value analysis that is discussed later is greatly useful in designing the product. Product should be planned in a way that it provides the maximum value at the minimum cost. Product designing might be needed either for introducing a new design or enhancement of the already presented design. The introduction of a new design is beneficial but risky because the new venture might or may not be successful. Therefore, a careful analysis of its cost elements (that is materials, labour and expenses) and its marketability is essential.

The venture regarding enhancement of the existing design is beneficial because the reputation gained through the old product is similarly to be improved and enhanced further by improved design of the product. The enhancement should be in the direction of making the product less costly; much more utility-oriented, durable and attractive.

(b) Production Planning:

Production planning can also very much assist in cost reduction. The location and lay-out of the factory have important affect on cost. In fact, the factory location cannot be changed so simply but its lay-out can be organised on more technical lines so like to decrease the cost of production.

(c) Direct Materials Cost Reduction:

Direct materials several constitute even more than half of the cost of a product. The following steps might be useful in decreasing material costs:

(i) Control should be employed on purchasing of raw materials. They should be purchased in economic lost at economic prices from reliable dealers at suitable times. The adoption of the Japanese just in Time (JIT) method may greatly decrease the material costs.

(ii) The several inventory control methods, viz., fixation and observance of inventory levels (maximum, minimum and re-order levels) of inventory, ABC Analysis, Ageing Schedule; Perpetual Inventory System followed through continuous stock taking, etc. should be adopted.

(iii) All attempts should be made to avoid/minimise losses and wastages of raw material. Economy should also be influenced in handling cost of raw materials.

(d) Direct Labour Cost Reduction:

Direct labour constitutes second significant element of the cost of a product. Cost reduction in labour is feasible by proper organisation and, works study and engineering departments, functioning of the personnel. The personnel department is regarding with finding out the right man for the right job and the right job for the right man. When the engineering and works study department is regarding along with job studies, time studies and motion studies. All these functions go a long way in reducing costs and so all attempts should be made to discharge them along with the intention to raise the productivity and reduce costs.

(e) Overheads Cost Reduction.

The term overhead involves factory overheads, office overheads and selling and distribution overheads.

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