Component costs

Assembly costs

Supplier costs

Process costs

‘Storage’ costs: Stock, WIP, FGI

Development costs

Test & QA costs

Quantity related costs

Financial costs

Requirements costs

Cycle times

Shipping costs

Support costs

Promotion costs

Supporting capital costs

Benchmark the product and associated processes against your competitors - how do you compete?

Collect data on cycle and process performance - monitor, analyze and correct towards the goal.

Discover the process rules (written and unwritten), document them, analyze and question them, propose alternatives, compare benefits and requirements, re-design.

Create common, reusable objects and processes (i.e. Economy of Process).

Don’t confuse product enhancements with cost reduction: both efforts can enhance profit, but should have different ROI considerations.

The process should always be prodded (stick to the plan and goals).

Even raise the price if perceived value is increased by the cost reduction effort

In the redesign of the processes, parallel as many of them as possible: i.e. engineering development; manufacturing; marketing; purchasing; vendor negotiation; custom parts development; distribution.

Finally ...

Why should a company develop an effective cost reduction methodology?

Competition and net profit are the prime reasons.

How can a company develop an effective cost reduction methodology?

As prescribed in this article, a corporate-backed business study and concise plan implemented by an experienced team can discover, define and implement a cost reduction program with measurable benefits.

The opinions expressed in this article are those of the author only and do not represent the views of the Techman/Kanata or of any of its directors, officers or employees. The author, Richard M. Haney, can be reached at RichardMHaney@cs.com