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Starting a Cost Reduction System, a few ideas!

Written by: Joe Dager

Article Overview: Putting a cost reduction strategy is always beneficial but many times difficult to start. I have listed a few steps below just to get the juices flowing and an entry into cost reduction. Put them to use and brainstorm a few more. But the most important tip I can leave behind is one the you have heard many times before...

Starting a Cost Reduction System, a few ideas!

Putting a cost reduction strategy is always beneficial but many times difficult to start. I have listed a few steps below just to get the juices flowing and an entry into cost reduction. Put them to use and brainstorm a few more. But the most important tip I can leave behind is one the you have heard many times before by Rudyard Kipling: "I keep six honest men. They taught me all I knew. Their names are What and Why and When and How and Where and Who." I urge you to use these six men.

Most effective way to reduce cost is STOP DOING IT!: Really, just stop doing it! It is simply amazing how many things you may not need to do. If you think the process is unnecessary, skip it for 1 minute, 1 hour, 1 day, 1 week, 1 month and finally 1 year. You may find out parts of it can combine into other parts of the process but trying to only do part of something is very difficult. Try it on something simple and see what happens. If you do not think you can, how do you react to a person absence, a machine's failure or missing paperwork? Try it! I am reminded of an observation by Peter Drucker in 1963: "There is surely nothing quite so useless as doing with great efficiency what should not be done at all."

Do cost reduction in an area where you have a competitive advantage. This will enable you to have the greatest impact and the most "bang" for your buck. If you make great strides in this area, it will in fact strengthen your advantage and may protect or even strengthen your long-term market share. Long-term market share is in fact the true measure of a company's growth.

Spend an hour per day/week on each "impact area" of your business, and you will be astonished at how much you can accomplish. You must schedule time to be effective. Even with yourself. An old line that I have heard many times is "It is not a Matter of time but a matter of priorities." If you cannot schedule time than cost, reduction is not a priority.

Use matrixes with low, high impact, low, high cost return, easy, hard to do to help decide what to do first. I typically use a 4-box matrix but on items that are more complicated a 6-box matrix should be used. Prioritizing this way can help you visualize the process so much better. It also can be used in defining the difficult/easy areas by department. Sometimes it is readily seen why it is easy for operations but difficult for finance or sales. The clearer the picture is for all, the easier it is to accomplish.

Most savings/expense is created in the design of the product/process. How many times have you told an engineer we are not designing a space shuttle? How many times do you come under budget? Anyone can do anything if he has all the money in the world. Do you wonder why our government is in the position it is? Cost effective and simple are not dirty words. They should be the words we reward.

Cost Half: The Method for Radical Cost Reduction by Toshio Suzue is a book that I offer on my website for cost reduction. However, I do not recommend for a Turnaround or a company in trouble. I do like it for the approach he takes for cost cutting activities. Base your goal for cost cutting on something big, 50%. People will not start with small incremental changes but approach it with a much broader perspective. Be radical; accomplish something if you are going to do it.

Look at what is important, not to you, but to your customer. Lean is a great process for this. It is process that I highly recommend everyone receive training in, especially the design team. Proven Methods in process Improvement is beyond the scope of this writing but Lean, Six Sigma and Lean Six Sigma have made great strides in manufacturing, administration, sales and other areas. The principles are sound and with minimal creativity can readily apply to just about any field. The value of these processes, I believe require a long-term commitment. You can spend a great deal of money and make little progress. Ease into it gently but with full commitment, the pot of gold is certainly at the end of the rainbow but it is a steep climb.

Be Objective, no Sacred Cows! People have a tendency to take ownership of "their ideas" and justify them. I have seen jobs created and continued for years in positions that did not do anything that added value to the company. I once removed a position and took the "book" away that the person was responsible for neither was missed. Objectivity can be tough though. We all love our own ideas and struggle to see the other side. We must be careful and especially the leaders of the project. Remember to lose a few battles; we are trying to win the war.

Typically, it is not the lack of available savings, but the lack of a process to find them or to improve them. Processes are important. You have a culture within in a company that you have created and most cost reduction actions will have a tendency to go against that culture. It may rub a few people the wrong way. That is typically when you know you are getting somewhere. You need to develop a process or borrow one from someone. I happen to supply a Cost Reduction Process kit on Amazon. Back to the reasoning though. A process kit should allow you to be objective, determine relative value to the different departments and customers have built in matrixes and used where you have a competitive advantage. Like most processes and plans, it must be a living document. One meant to be massaged and changed as you develop as an organization. It is why processes like Lean, Six Sigma, Theory of Constraints, and TQM became popular but why did most fizzle out or just become another FAD. They really did not fade away they evolved many time into something else and we were better for it. Take Lean Six Sigma for example. People will argue with me but most of them have sound principles that can be used today. What is important is that you take ownership of a process and use it day in and day out. Develop it and leave it become rooted in the culture of your company. Cost reduction should not be a once and a while fix that we pull out and use. It should be an ongoing part of our everyday lives. Remember Great Companies have Great Systems.

Below is a very simple methodology that you can start using today without any training, just a little common sense.

Seven Step method for solving a cost reduction problem:

1. Define your problem
2. Define your ideal solution(Stop doing it!)
3. Gather the facts
4. Try various combinations, look outside the box.
5. Break the pattern,not everything happens outside the box. It is interesting how many things are solved within the box. Do not forget the simple solution. Complexity is seldom a solution; it is usually part of the problem.
6. SCAMPER it
   1. What can you Substitute?
   2. What can you Combine?
   3. What can you Adapt?
   4. What can you Modify or Magnify?
   5. Can you Put to other uses?
   6. What can you Eliminate or reduce?
   7. What can you Reverse/Rearrange?
7. Leave it sit for a day, but set a deadline. Sleeping on it has value!

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Article Tags: cost reduction, juices, reduction strategy, reduction system



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