Cost Red. Part 1

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Cost reduction and profit improvement for businesses

Cost Reduction Part One

Cost Reduction Programs
for
Increased Profitability

By Steven C. Martin

  1. ABSTRACT:

    2. This paper summarizes the proven benefits of cost reduction programs as proactive means to enhance profitability and enhance cash flow. Evaluations are provided for the reader to assess existing programs or determine if a program might be useful. It also presents the key elements, some of the myths, and factors to consider in program design and implementation. The importance of structure of a Cost Reduction/Profit Enhancement Program to ensuring results consistent with the goals and values of the organization is discussed.

     

  2. SUMMARY:

    3. Most organizations cannot afford not to have an effective Cost Reduction Program (CRP) of some type. Business is under ever increasing competitive pressure. Markets are more global than they have ever been and your competition may be overseas whether you know it or not. Consumers are demanding more and more. Those organizations that do adapt and grow, survive; those that do not, don't. Programs are most readily installed when business is good and resources are available. It is cheap insurance against lean times and a great way to influence the future productivity and profitability of your organization. Use the evaluations  to evaluate your existing program or to see if your organization is suited for one.

    The quickest and surest way to improve profitability is to effectively reduce costs. Each dollar removed from expenses reports to the bottom line profit. The most difficult approach is to increase sales. While the best corporate strategic and operating plans focus on both, one cannot deny the power of an effective Cost Reduction Program. CRP's are easy to install and can guarantee you results.

    CRP's are not a fad. The fact that they have been with us for decades is proof of their value and effectiveness. They may be seen as stand-alone programs or elements of Reengineering, TQM, Value Engineering, Industrial Effectiveness Programs, Continuous Improvement, or the like. One Fortune 500 company we worked with reported that 30% of their profits derived directly from their long standing CRP. A smaller company we know reports that 100% of their current profits derive from their CRP.

     

  3. My organization already has a program - How good is it?

 

Take the 10-question evaluation now if you haven't yet. It will quickly measure your program against the protocols that have been found to be most effective.

 

4.  We don't have a program - Is my organization a candidate?

    Take the 10-question evaluation  now if you haven't yet. Take the 10-question evaluation  now if you haven't yet. It will help you quickly evaluate whether or not your organization is a candidate for a CRP.

5.  Here is the structure of an effective program.

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Program Structure

Effective Cost Reduction Programs have a simple structure.  The ability to create new option ideas before they are evaluated prevents good ideas from getting lost. Well-structured evaluation and implementation ensure that good ideas are harvested.  Continuing the process ensures that the process stays alive and contributing to the success of the organization.

6.  Why should we use a Cost Reduction Program?

  1. Desire to improve profit margins or increase services per expense dollar.
  2. Need enhanced stability
  3. Must meet & beat competitive challenge
  4. Combat obsolescence - find new opportunities & products
  5. Overcome stagnation or inadequate growth

7.  What are the benefits?

  1. Higher profits from lower costs and higher margins
  2. Improved balance sheet
  3. Larger market share from price reductions after cost reductions
  4. Greater organizational stability - fewer layoff's
  5. Better morale
  6. The organization develops a stronger future focus
  7. Improved quality & service
  8. Focus on quality, service, and other process elements is revealing & enabling
  9. Employee participation builds focus and teamwork
  10. Enhanced competitive position
  11. As a change mechanism it prevents obsolescence
  12. It's a way of keeping track of improvements to show your stakeholders
  13. A CRP can usually produce bottom line results faster than revenue enhancement programs.

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Cost Reduction and Profit Improvement process book

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(c) 1998 - 2008 Steven C. Martin, Business Solutions.  All rights reserved.

The contents of this paper are copyrighted and, as such, may be used for personal use only.  Duplication and/or commercial use of this material is expressly prohibited without written permission of the author.

  

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