Cost improvement vs. cost-cutting

Often over time you have had to deal with cost reductions. More recently, some of you have decided that you need to find additional solutions to reduce costs by 5%, 10%, 20% or even 30%, in addition to the compensation for certain orders. In this context, you simply do not see how the cost reduction can be done.

However, you often hear people talking about cost improvement or cost-cutting. Others seem to use terms like cost elimination, cost optimization, cost avoidance or cost savings just to talk elegantly about cost reduction.

But in reality, cost improvement and cost-cutting mean very different things. So what exactly is the difference and which can help you when your manager constantly asks you to reduce the spending budgets?

Cost-cutting refers to immediate, direct single actions designed to reduce the company’s spending levels. A fixed amount to be reduced is often set and a date is identified by which the savings must be made. The most common ways to reduce costs are related to staff, such as layoffs, pay cuts, benefit reductions and so on. Other initiatives could include reducing space, creating home-based work options for employees, shortening working hours, reducing marketing costs, reducing consumables, and so on.

1. for the sales increase scenario (in other words, making a profit by maximizing outputs), the aim is to improve the related costs: equipment losses; losses with the development of new products; losses with the development of new equipment; losses with changes/ adjustments to the production plan; losses with obsolete equipment; losses with internal/ external distribution;
2. for the sales decrease scenario (in other words, making a profit by minimizing inputs) the aim is to improve the related costs: labor losses – fixed costs; losses with maintenance materials – fixed costs; material losses – variable costs; energy losses – variable costs; WIP from set-up (WIP-S); WIP from transfer (WIP-T); bear to line inventory waste; raw material inventory waste; components inventory (if any) waste; losses with packaging stocks; finished products inventory waste; losses with area/ square meters.

Therefore, unlike cost-cutting, cost improvement is not an immediate and unique activity. Instead, it offers a long-term solution for the company’s budgets.

For over 15 years, Exegens has been helping companies improve their costs, while helping them improve their productivity. Using Manufacturing Cost Policy Deployment (MCPD and Speed-Based Target Profit (SBTP) technologies, globally recognized technologies, we ensure that your cost improvements are always aligned with the needs of profitability and competitiveness. MCPD and SBTP are the results of my ongoing research for over 23 years in over 100 companies.

So, do you want to improve your costs starting today? Then Exegens cost improvement experts are the solution to your problem.