The best approach to continuous cost reduction
After the various improvements have been implemented, the total value of the cost improvement often seems to be high, but it does not seem to bring visible improvements in business results (especially competitive price, volume and profit).
Having spent a lot of time in several companies lately, the current challenges are:
- the need to lower the prices of the products has become more urgent than expected;
- the cost reductions cannot keep up with those of the competitors;
- the profitability of the new products does not fully contribute to the planned operational profit;
- certain categories of costs tend to increase continuously (raw materials, components, utilities, etc.);
- the volumes of products tend to decrease further in the future.
Even if cost reduction is often addressed by breaking down the top-down reduction goals for each division/product/cost structure, achieving these goals is not complete, timely and consistent because they are based on people’s experience and not a scientific approach (based on accurate measurements).
Are you sure you have the best approach to continuous cost reduction? Is the full potential for cost-effective reduction exploited?
Source: Alin Posteucă on LinkedIn