Cost Reduction In Small-Scale Business Operations
April 4th 2007 06:30
If you're the owner-manager or operation head of your business, and you discovered that you've overshot your budget again after reviewing production costs, what will be your reaction?
* Lay off workers to decrease labor cost?
* Compromise on quality of raw materials?
* Skip on "non-essential production step, like double finishing or inspection?
* Skip promotion and other marketing activities?
No doubt, those would save you a fast buck. But what about the long-run viability of your business? What happens to product quality? Your orientation to customer service? Think of new ideas and approaches for better and more effective implementation of a cost-reduction program. To you, the owner, the most practical solution is cost reduction. Why not?
Cost reduction is basically an organized and planned method of reducing waste (e.g. materials, man-hours, time, etc.) and reducing expenses in operations in order to improve profits. In any business operation, a cost reduction program can be classified in three categories ; waste prevention, operations analysis and innovative ideas. It is within these classifications that an active program can be organized, classified and communicated within the whole organization.
Waste preventionis the conservation of materials, equipment, labor and personnel resources. it is saving on the things used to manufacture products or to provide services.
Operations analysis, in contrast to waste prevention is a methodical assessment of all aspects of the business operations. It's purpose is to pinpoint inefficiencies and make improvements, thereby reducing unit costs.
Innovative ideas. Many companies implement excellent cost -reduction programs, but these are usuallylimited in scope. The ingredient most frequently missing is the organized feed-in of new and innovative ideas from outside sources. If you want your business to be competitive, you need to look around to discover new things in order to survive.
The following checklist can guide you in starting a good cost-reduction program:
* Development of a program checklist. This involves identification and classification of costs. It also involves procedures to use such as setting objectives, responsibilities, targets, records, and measurement or evaluation policies.
* Form committees in order to identify responsibilities. It is necessary that any contributions by employees be recognized and compensated.
* Maintaining records of programs. Coupled with identifying responsibilities in specific programs, keeping details of activities, status and accomplishments is equally important. These are necessary in the preparation of accounting and management reports crucial in the planning of company strategist.
* Identification of cost-reduction idea sources. Ideas are the very heart of any cost-reduction program. Without these, any program would fizzle sooner or later.
* Communication. This is perhaps the most critical portion of implementing a cost-reduction program for the simple reason that employees need to be informed of the program itself, the procedures, responsibilities, and updates. Cost-reduction can operate best when it's objectives are fully disclosed.
* Lay off workers to decrease labor cost?
* Compromise on quality of raw materials?
* Skip on "non-essential production step, like double finishing or inspection?
* Skip promotion and other marketing activities?
No doubt, those would save you a fast buck. But what about the long-run viability of your business? What happens to product quality? Your orientation to customer service? Think of new ideas and approaches for better and more effective implementation of a cost-reduction program. To you, the owner, the most practical solution is cost reduction. Why not?
Cost reduction is basically an organized and planned method of reducing waste (e.g. materials, man-hours, time, etc.) and reducing expenses in operations in order to improve profits. In any business operation, a cost reduction program can be classified in three categories ; waste prevention, operations analysis and innovative ideas. It is within these classifications that an active program can be organized, classified and communicated within the whole organization.
Waste preventionis the conservation of materials, equipment, labor and personnel resources. it is saving on the things used to manufacture products or to provide services.
Operations analysis, in contrast to waste prevention is a methodical assessment of all aspects of the business operations. It's purpose is to pinpoint inefficiencies and make improvements, thereby reducing unit costs.
Innovative ideas. Many companies implement excellent cost -reduction programs, but these are usuallylimited in scope. The ingredient most frequently missing is the organized feed-in of new and innovative ideas from outside sources. If you want your business to be competitive, you need to look around to discover new things in order to survive.
The following checklist can guide you in starting a good cost-reduction program:
* Development of a program checklist. This involves identification and classification of costs. It also involves procedures to use such as setting objectives, responsibilities, targets, records, and measurement or evaluation policies.
* Form committees in order to identify responsibilities. It is necessary that any contributions by employees be recognized and compensated.
* Maintaining records of programs. Coupled with identifying responsibilities in specific programs, keeping details of activities, status and accomplishments is equally important. These are necessary in the preparation of accounting and management reports crucial in the planning of company strategist.
* Identification of cost-reduction idea sources. Ideas are the very heart of any cost-reduction program. Without these, any program would fizzle sooner or later.
* Communication. This is perhaps the most critical portion of implementing a cost-reduction program for the simple reason that employees need to be informed of the program itself, the procedures, responsibilities, and updates. Cost-reduction can operate best when it's objectives are fully disclosed.
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