Cost reduction
Encyclopedia
Cost reduction is the process used by companies to reduce their cost
s and increase their profits
. Depending on a company’s services or Product
, the strategies can vary. However, it is important to remember that 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.
• 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
• Should cost
• Product benchmarking
• Design to cost
• Design workshops with suppliers
• Competitor benchmarking
"Should cost estimating"
"eSourcing system"
Cost
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this...
s and increase their profits
Profit (economics)
In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...
. Depending on a company’s services or Product
Product (business)
In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...
, the strategies can vary. However, it is important to remember that every decision in the product development process affects cost
Cost
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this...
.
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)
Request for Quotation
A request for quotation is a standard business process whose purpose is to invite suppliers into a bidding process to bid on specific products or services. RFQ, generally means the same thing as IFB ....
• Supplier cost breakdown analysis
• Function analysis / Value analysis / Value engineering
Value engineering
Value engineering is a systematic method to improve the "value" of goods or products and services by using an examination of function. Value, as defined, is the ratio of function to cost. Value can therefore be increased by either improving the function or reducing the cost...
• Design For Manufacture / Design For Assembly
• Reverse costing
• Cost driver analysis
• Should cost
• Product benchmarking
Benchmarking
Benchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries. Dimensions typically measured are quality, time and cost...
• Design to cost
• Design workshops with suppliers
• Competitor benchmarking
Tools for cost reduction
"Tutorials and cost reduction analysis tools""Should cost estimating"
"eSourcing system"