Thursday, July 3, 2014
Techniques Of Cost Reduction For Effective Cost ManagementIn Business
One of the crucial aspects
of efficient business functioning and to prevent the business from high expenditures
is effective
cost management.Effective cost management helps the business to cut
down costs and therefore maximize profits. Effective cost
management can be undertaken with the help of several tools and techniques of cost
reduction.
This article provides profound
knowledge on the various proven tools and techniques of cost reduction. Reading
this article, various entrepreneurs and business professionals will be able to expand
their thoughtson some basic factors, essential for effective cost management.
The
essential techniques of cost reduction for effective cost management are as
follows-
#System
of JIT or Just-In-Time
JIT system’s major focus is
to createonly required items at required quantity and quality. Just-in-time system
favors producing required standardized goods at the required precise time. The
basis of JIT is to reduce the burden of huge carrying costs linked with the holding
of high inventory levels. Investment in inventories forms a large share of
firm’s expenditure costs. Hence, JIT purchasing system diminishes investment in
inventories due to frequent ordering of small quantities.
#Target
Pricing
Target pricing refers to the
product’s design and processes utilized to create the product. Target pricing aims
to manufacture a good at a profitable cost. It enables the firm to gain profit
by selling the good at anestimated market-driven cost. This estimated selling price
is known as target price.
#ABM
or Activity Based Management
Activity based management (ABM)
focuses on using activity based costing for improving operations. ABM identifies
and eliminates non-value added costs.
Life
Cycle Pricing
The Life cycle pricing system
estimates the costs of a product over its entire life cycle. It also records
all the costs incurred during the product’s manufacturing phase. In this way it
determines whether the earned profits during product manufacturing phase will be
able to cover incurred costs before and after the manufacturing stage.
Kaizen
Technique
Kaizen technique aims to reduce
cost during a product’s manufacturing phase. It’s a Japanese word and focus on regular
improvement using small but effective activities. This is in contrast to large
or radical improvements via innovation and large investment technologies which require
huge capital and if not successful leads to huge losses. Kaizen technique is especially
helpful for SMEs and small businesses with limited capital.
Six
Sigma
Six Sigma is known to be
today's by-word for businesses for efficient management and cost reduction. It
includes a set of techniques for process improvement and effective cost
management. Motorola in 1996 developed Six sigma principle. It formed Jack
Welch's core business strategy for process at General Electric. Today, it is
used in many businesses to achieve effective cost management. It also helps to
achieve other important objectives like reduction in process cycle time, reduction
in pollution, reduction of costs, higher customer satisfaction and increased
profits.
The focus of Six Sigma is to
improve quality of process outputs. It achieves this by identifying and then removing
the defect causes or errorsfrom the roots. This reduces and gradually eradicates
variability of manufacturing as well as business processes thereby reducing immense
costs and maximizing profits!
There are various other cost-reduction techniques you can use to maximize cost effectiveness and increase profits of your company. Indian Academy of Management(IAM) is organizing a seminar on “Effective Cost Management & Cost Reduction Techniques” This will give you more profound ideas from expert professionals in terms of successfully proven cost management techniques to grow your business manifold!More than 1, 00,000 executives have benefitted from our training seminars since 2002.Book your seats now!
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