Determine the Scope and areas of cost reduction
Scope and areas of cost reduction the scope of cost reduction is so wide that it is not practicable to develop fully the areas in which cost reduction may be applied. Wherever cost are incurred there is scope for their reduction in any particular area. Effort should therefore be made to reduce cost right from the top level to the shop floor level. However in the following areas scope of cost reduction is the largest:
1) Product design : the design of the product provides the greatest scope for cost reduction. Product design being the first step in production if cost reduction can be made at design stage then it is likely that the benefits can be availed to the largest:
there are two basic point that should be kept in mind while effecting cost reduction in product design:
1) The product should perform all the functions for which it is intended and
2) The production should retain its esteem or aesthetic value this is in the case of many products which have the shape or other characteristic which pleases the eye.
2) Organization : cost reduction may also be achieved by improving factory organization in form of clear-cut lines of authority and responsibility , wall-define charnels of communication , co-ordination and co-operation between various executives , etc,
3) Production : cost reduction program should make study of sequence of operation to fined out the best one , to used the most suitable machines for the work ,to use jigs and fixture to reduce operating time , to reduce ideal time , to reduce scrap by the use of bate quality tools , to provide better working condition conduct to efficiency , etc.
4) Administration : item under this head include saving affected by modifying the rang of cash discounts to customers introduction mechanical and electronic aids to office routine, modifying internal and external communication system, etc.
5) Marketing : in this function costs can be reduced by revising the method of remuneration of salesmen re-arrange territorial responsibilities of sales representative modifying current methods of advertising improving product design and production quality so to reduce after sales service economizing channels of distribution improving packing etc.
6) Finance : a cost reduction programmed should aim at securing capital at economical cost employing capital to give maximum return and eliminating over and under capitalization and wasteful use of capital etc.