Thursday, July 3, 2014

Techniques Of Cost Reduction For Effective Cost ManagementIn Business

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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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