Post on 08-Apr-2018
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PADMASHREE DR.D.Y.PATIL UNIVERSITY
(DEPARTMENT OF BUSINESS
MANAGEMENT)
COST ACCOUNTING
Report
On
COST REDUCTION METHOD FOLLOWED
SUBMITTED TO:-
PROF. SHWETA
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GROUP MEMBERS:
1. Digvijay Tendulkar 108
2. Rupal Upadhayay 045
3. Priyanka Gharat 107
4. Kavita Tiwari 105
5. Anisha Subramaniam 104
6. Poonam suryawanshi 122
7. Prerna Lodha 042
8. Shalaka Mohite 044
9. Sarvesh Damle 113
10.Avinash Repale 116
11.Abhishek Singh Yadav 031
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INDEX:
INTRODUCTION
SCOPE OF COST REDUCTION
ADVANTAGE OF COST REDUCTION
COST REDUCTION V/S COST CONTROL
STEPS IN REDUCING COST AND INCREASING
PROFITS
COST REDUCTION TECHNIQUES
EXAMPLES OF COMPANIES USING COST
REDUCTION TECHNIQUES
BIBLIOGRAPHY
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Almost every organization in the world today is looking at
ways to reduce costs. Some companies can do this fairly
simply by closing factories or giving top-down targets to all
relevant departments (costs to be reduced by 20%). Other
companies feel that they require a more fundamental approach
and restructure the way that they do their business. Sometimesthis includes a strategic review of which products and services
should be offered to the market, other times the markets
served are seen as stable. In the second case there is usually a
need to fundamentally re-assess how the products / services
are brought to market in order to radically decrease the costs
and/or to improve service levels.
What is Cost Reduction?
Cost reduction is to be understood as the achievement of real
and permanent
reductions in the unit cost of the goods manufactured or
services rendered without impassing their suitability for the
use that is intended- ICWA London.
Cost reduction is not simply attempting to slash any and all
expenses immethodically. The owner-manager must
understand the nature of expenses and how expenses inter-
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relate with sales, inventories, cost of goods sold, gross profits,
and net profits.
Cost reduction does not mean only the reduction of specific
expenses. You can achieve greater profits through more
efficient use of the expense dollar. Some of the ways you do
this are by increasing the average sale per customer, by
effectively using display space and thereby increasing sales
volume per square foot, by getting a larger return for youradvertising and sales promotion dollar, and by improving your
internal methods and procedures.
SCOPE OF COST REDUCTION:
Cost reduction is attainable in almost all areas of business
activities. There is perhaps no situation which cannot be
improved. It covers a wide range like new layout, productdesign, production methods, materials and machines in
factories as well as in offices, innovation in marketing etc. it
may also extend to specified activities like purchasing,
handling, packaging, shipping, warehousing, marketing, use
of administrative facilities and even the utilization of financial
resources.
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Excessive cost may result in every organization from:-
1. Lack of information about raw material, processes,
products, components etc.
2. Lack of utilization of ideas generated form performance
and economic analysis
3. Honest but wrong beliefs that certain things are impossible
for achievement
4. Temporary circumstances like features developed under
pressure or modification made to meet certain circumstances
5. Habits and attitudes of confining to one conventional
method
It is not necessary for the management to proceed in any
specific sequence in considering the various aspects of cost
reduction and it may be necessary to start the campaign in
more than one direction at the same time.
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ADVANTAGES OF COST REDUCTION:
In so far as Individual capacity is concerned, cost
reduction helps in profit improvement.
It enhances the share value, improves investment
opportunities and facilitates the collection of capital.
The society will be benefited by the reduced prices
which may be possible by savings from cost reduction
programs.
Workers and staff of the industry may also be
benefitted through increased wages and improved staff
welfare amenities.
The country also stands to gain immensely by the
cost reduction programs.
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COST REDUCTION vs. COST CONTROL:
COST REDUCTION
COST CONTROL
This process finds out thesubstitute by finding newways or methods
This process undertakes thecompetitive analysis ofactual results withestablished norms
Under this process
necessary steps are takenfor further modification inthe method.
Under this process the
variances are appraised andnecessary course of actionwill be taken to revisenorms, standards etc
It challenges the standardsforth with and attempts to
reduce cost on a continuousbasis .
It starts from establishedcost standards and attempts
to keep the costs ofoperation of a process inline with those standards.
The emphasis is partly onthe present costs and
largely on future costs.
The main stress is on thepresent and past behavior
of costs.
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It is universally applicable.It should be applied to
every area of business. Itdoes not depend onstandards, through targetamounts may be set.
It has limited applicabilityto those items of costs for
which standards havealready been set. The itemsfor which standards are setmainly relate to productiveoperations
Cost reduction is a
corrective function. Itoperates even whenefficient cost control systemexists
Cost control is a preventive
function. Costs areoptimized before they areincurred.
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Following are major areas of COST REDUCTION:
1. Raw material procurement:
a) Bulk buying
b) Opportunity buying
c) Make or buy
d) Annual Rate contracts
2. Logistics- Inbound and Outbound:
a) Route mapping
b) Loadability
3. Warehouse and Stores:
a) Low inventory
b) Space management
c) EOQ
4. Manufacturing Process (Production):a) manufacturing
b) Automation
5. Energy, fuel & Water
a) Motors
b) lighting
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c) compressors
d) fuels
e) recyclef) Waste water management
6. Information Management Enterprise Resourcemanagement
7. Human Resources Out-sourcing
The following are 10 steps a manufacturing business can use
to become more sustainable and green while reducing your
costs and increasing your profits:
1. Adopt a Sustainable Business Strategy
Your strategy should begin by creating a green supply chainmanagement that fits sustainability into your core businessstrategy. Sustainability is development that meets the needs ofthe present without compromising the ability of future
generations to meet their own needs. It represents the meansby which your business can achieve reduced costs andincreased profits. Commit to building your business greenfrom the inside out by redefining your goals so that theyincorporate sustainable thinking into every aspect of yoursupply chain, from purchasing to production. If you commit toan informed sustainability strategy, it can be a catalyst forinnovation in your business.
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2. Implement a System Evaluation
You need to review every aspect of your supply chain. Lookfor areas where significant environmental costs occur. Useteams of people that include members from different divisionsto identify these problem areas and determine what you cando to yield significant cost-saving while reducingenvironmental impacts. After calculating the benefits, you
should begin implementing procedures that will correct theproblem areas within your overall system.
3. Review Your Purchasing Procedures
Purchasing is the point where materials come into themanufacturing process. Becoming greener means using
suppliers with a higher environmental performance. Thisincludes environmentally friendly raw materials that arenatural, organic, and biodegradable. One practice beingadopted by businesses is to put all purchasing under onedepartment. Advantages include buying in larger quantities ata lower price, storing materials in a central location, anddistributing materials as needed, cutting waste due to
materials not being used in a timely manner.
4. Make Your Manufacturing Methods More Efficient
The goal is to implement a process that is efficient and haslittle or no waste. This lightens your global environmentalfootprint while improving the quality of your companys
products. Efficiency pertains to increasing your productionrates by producing the same amount of product using less
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floor space. The past 10 years has brought new ways ofthinking that have created more efficient methods for doingthings. Building and operating a production line today costs
less than its counterpart did 10 years ago.
5. Reduce Energy Consumption and Costs
By implementing an energy-saving program, you couldpotentially reduce your electrical consumption by half.Another method for reducing energy consumption and costs is
by using renewable energy sources. For example, carpetmanufacturer Tandus uses 100 percent biodiesel, a renewableenergy source. It replaced diesel fuel in its commercial boilersand as a consequence reduced air toxins by 60 percent to 90percent, particulates by 48 percent, and carbon dioxide by 78percent.
6. Purchase Energy-Saving Machinery
Facilities and equipment management is an area wheremanufacturers can improve their sustainability. Recentinnovations have increased the efficiency of machines whilereducing their impact on the environment. New equipmentwith energy-saving and eco-friendly features can reduce costs
by operating more efficiently, utilizing materials to theirfullest, and producing a better product at a faster rate withlittle or no environmental impact.
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7. Produce Products That Are Recyclable or
Biodegradable :
Design and manufacture products that are organic and health-conscious rather than toxic to your customers. Consumers arebeginning to demand that the products they buy be eitherrecyclable or biodegradable. Your company should devise asustainability warranty that guarantees that the waste fromyour products will not wind up in landfills or be incineratedinto the air. This gives your customers proof that you do whatyou say.
8. Reduce and Recycle Waste
Reduce waste and create a closed-loop program. This meansrecycling a product back into itself, essentially creating little
or no environmental waste. This is a key element in naturalresource preservation and sustainability.
9. Become Educated on Green Manufacturing Practices
Environmental literacy, research, and continuous learning areessential to your process of becoming green and creating a
safer work environment. Educate your staff. Require everyoneto participate in the movement to green manufacturing.
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10. Stay Informed About Government Regulations
Take a proactive approach to stay ahead of the environmentalregulations that various government agencies impose onmanufacturing businesses. Inform yourself regarding bothcurrent and impending regulations that affect your business.Honda and Toyota are examples of manufacturers stayingahead of the regulations. Both companies have developed andproduced new engines that not only meet but exceed therequirements.
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COST REDUCTION TECHNIQUES:
1. Eliminate Paper Flow
A great way to improve productivity
while lowering costs is to eliminate paper flow. The average
office worker prints 10,000 sheets of paper a year. The best
approach is to place all documents online for employees to
download, read, and make changes to. Also, instruct all
employees not to print e-mails and other unnecessary
documents that will usually end up in the trash upon a few
quick glances. Have IT set all printers to print doubled sided.
2. Ask for Employee Suggestions
Employee suggestions play a vital role in cost reduction and
increasing productivity because employees have moreexperience regarding daily operations in a business. Every
suggestion that your business implements improve your
business in some way. Performance may be improved,
customer satisfaction may increase, costs reduce, or some
other positive impact improves your business in some way.
The average employee suggestion saves the company $6,224
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in operational expenses. The more ideas you implement the
more your business will improve. These suggestions will add
up over time and can be used as a competitive advantage.
3. Collaborate with Suppliers
Your vendors are your best allies
when implementing cost reduction strategies within your
organization. Consider a variety of programs, such as vendor
managed inventory systems (VIM), vendor stocking programs(VSP), and common supplier joint procurement policies.
Choosing a VSP reduces inventory costs for less popular
items and increases supplier reliability and dependency.
Alleviate the nightmare of managing inventory by giving the
responsibility to the vendor, which reduces your inventory
and related expenses.
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4. Reduce Lead Times
When a product arrives at the warehouse it inevitably takes
several days for it to reach the customer. Review and refineyour receiving protocols to ensure products hit the shelves
with minimal delay by maintaining adequate order supply
rates and throughput levels. Consider rationalizing SKUs by
removing inappropriate products from the shelves. Maintain
optimal levels by reducing safety stock inventory and
increasing order fill rates.
5. Manage and Optimize Your Inventory
Enhance your cost reduction efforts by monitoring your
inventory on a weekly basis, noting the exact supply levels of
each item in the warehouse. Internal inventory management iscost efficient, however; larger companies may find external
inventory management a viable option. Create an automated
system to automatically order new supplies, which reduces
back office labor expenses. Improve efficiency and maximize
space by organizing inventory supplies and modifying the
layout of the room or warehouse. Keep the aisles free of
debris and narrow, with enough room for handcarts, forklifts,
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or other equipment. Consider liquidating products that are
expiring soon or have a history of poor sales.
6.Analyze Supply and Demand
You need to analyze supply and demand in order to
effectively lower supply costs and increase productivity in
your organization. Work with the sales team reviewing salesfigures from the past several years, forecasting sales for the
next three months based on consumer confidence, past sales,
acquisitions, and merges. Keep in mind external variables
such as weather, the economy, holidays, and national events.
Repeat the process each quarter, refining forecasts as
necessary. A good cost reduction strategy requires businessesto stay one step ahead of the consumer.
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7. Downsizing
Some company leaders feel they can reduce costs by simply
downsizing or reducing the number of workers. If this is done
after defining the exact role of every staff, it may be a
necessary and effective method. Unfortunately, most
businesses that reduce their headcount do so without really
knowing the impact on the company's operations. All they
really do is let off some staff to reduce the wage bill. One of
the biggest effects of downsizing to reduce costs is that, often,
good employees leave for greener pastures. Thus the business
is left with the "deadwood" staffs, who are expected to do
twice as much work as before.
8.Reducing Customer Service Levels
Customer service can be a hassle and is often an expensive
issue. Sometimes to cut costs, businesses will reduce oreliminate the range of added services they give to the
customers. Unfortunately, a neglected customer will become
an ex-customer. He or she will simply go to your competitor,
who will be glad to service their needs at your expense.
Companies must see the benefits of customer satisfaction in
establishing long-term business relationships. A satisfiedcustomer is often a repeat customer. Also, the customer may
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network with other clients and refer them to your business.
This means that you not only have a source of continuous
business, but you have a viable route to new business
opportunities. This can save your company money that might
be spent on advertising. Repeat business and word-of-mouth
advertising are the excellent ways of maintaining a healthy
business.
9. TQM ToolsThe total quality management (TQM) philosophy of doing
business emphasises lowering costs by reducing waste,
helping suppliers provide quality products and satisfying the
customer with quality goods and services. Companies that can
produce goods at lower costs than their competitors, while
delivering quality products that satisfy their customers, havean advantage. Implementing TQM can help a company gain a
competitive advantage in their business.
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SOME EXAMPLES OF COMPANY USING
COST REDUCTION TECHNIQUES:
INDIA MART
Supply Chain Cost Reduction
Apply Lean techniques to identify non-value added time and
cost in the supply chain.
End-to-end supply chain modelling is used to study supplier
to market allocations.
We use freight cost benchmarking and auditing to ensure that
the tariffs reflect market rates and that complex freight
invoices are accurate.
Our inventory model is used to calculate the stock levels to
achieve the required level of customer service.
Example projects have provided cost savings of 26% by
improving product sourcing by market, service improvementsof 10% with no increase in inventory, over 10% reduction in
international freight costs and 30% reduction in lead time.
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Warehousing & Transport Cost Reduction
Our Operational Benchmarking establishes how you stand
against both the industry peer group and our best practicemodel.
Cost profiles clearly identify discrepancies between where
you are and where you should be. All key cost drivers such as
manning, space and mileage are assessed in terms of the
correct and forecast business volumes. Our experienced team
gives practical guidance through the implementation of ourrecommendations.
Negotiations with third party contractors are supported with
clear independent reasoning.
Example projects have achieved labour cost savings of 10%
or more, 30% increased capacity and 20% on third party costs.
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Strategis IT Cost Reduction
Doing more with less
The current economic climate will force all businesses tothouroughly examine their cost structure. Whileorganisations in some industries are more impacted thanothers, all organisations are proactively seeking ways tocut costs. Further, over the time as IT costs make up ahigher percentage of the revenue, CIOs who will have
clear mandates to do more with less within aggressivetime frames. By taking a hollistic approach that isEnterprise wide, examines all IT spent and prioritizesthe right IT cost reduction opprtunities. CIOs wil be ableto successfully meet their objectives.
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TATA MOTORS
How could Tata Motors make a car so inexpensive?
( NANO)
No Radio, Power windows, air conditioning, anti lock
brakes, air bags, remote locks or power steering.
Rear wheel drive: manually actuated 4-speed trans axle
that gives the car better fuel efficiency
Wheel Bearing: Wheel bearing is strong enough to drive
the car at 72kmph but would quickly wear out at higher
speeds.
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Analogue speedometer, odometer and fuel gauge.
Single windscreen wiper
Fundamentally, the engineers worked to do more with
less. The car is smaller in overall dimensions than the
Maruti, but it offers about 20 per cent more seating capacity
as a result of design choices such as putting the wheels at
the extreme edges of the car.
Competitive advantages that Tata Motors has whichothers do not possess:
Cheapest car in the world tag.
The Chairman Ratan Tata is a socialist who helped
victims of 26/11(corporate social responsibility).
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SANDOZ COMPANY (PHARMACEUTICAL
COMPANY)
We personally visited SANDOZ COMPANY in NAVI
MUMBAI. We had a conversation with Mr. Shubratoh
Banerjee. He gave us very useful information and helps us to
know about the cost reduction done in his company.
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Firstly the company concentrates on fixed cost and
variable cost. As fixed cost is constant the company
works on variable cost depending on how much units to
produce.
Reutilization:
Generally one person should work on one activity,
but if u want to reduce cost, the employee should be
trained and hence he can do multi-tasking job. Due to
this number of employees will be reduced andcompanys pay packages will decrease.
Produce more to lower the cost.
Increase the capacity as fixed cost will b same but per
unit cost will change.
Efficiently utilization of equipments:
The company uses energy efficient equipments.
AREAS WHERE COST REDUCTION CAN BE DONE:
Mostly works on ABC CONCEPT. The areas having
largest cost are attacked first and then worked on
reducing its cost. Areas where variability of cost can be
done.
Recurring expenses:
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Preventative maintenance should be done on heavy
equipments which need time to time service to be done.
Due to this huge lose can be avoided by breakdown of
machineries.
ADVANTAGES:
The payback period of the equipments can be calculated.
Due to energy efficiency machineries, the company
could compute the fuel and energy that is saved.
Their production capacity has increased three times.
BIBLIOGRAPHY:
www.the-cost-reduction-consultant.com
Buzzle. com
www.infosys.com/offerings/industries
www.indiamart.com
www.us.sandoz.com/site/en/company/profilE
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http://www.the-cost-reduction-consultant.com/http://www.the-cost-reduction-consultant.com/http://www.infosys.com/offerings/industrieshttp://www.infosys.com/offerings/industrieshttp://www.indiamart.com/http://www.indiamart.com/http://www.us.sandoz.com/site/en/company/profilEhttp://www.us.sandoz.com/site/en/company/profilEhttp://www.the-cost-reduction-consultant.com/http://www.infosys.com/offerings/industrieshttp://www.indiamart.com/http://www.us.sandoz.com/site/en/company/profilE8/7/2019 cost_reduction_final_word_doc_modified._(1)_FINALLLLLLLLLLLLLLL
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http://tatanano.inservices.tatamotors.com/tatamoto
rs/index