Cost Reduction: Techniques and Advantages

Cost Reduction: Techniques and Advantages


Cost reduction is a process of eliminating waste and improving business operations by reducing overhead or cost of products/services sold. The main motive behind cost reduction is simplifying the process of product manufacturing without compromising the quality and suitability of the product with the help of new and improved methods. By employing scientific and the latest cost reduction techniques, you can minimize risks, maximize profits, and eliminate waste from the manufacturing plant.


Cost reduction comes from high plant productivity. It is a corrective technique, which is used by most of the manufacturing plants to decrease the unnecessary expenses of products manufactured and to increase the overall profits. Let’s have a look at various cost reduction techniques that can help not only in saving costs but also in revenue improvement.


Cost Reduction Techniques

Cost reduction has two primary motives:


  1. Reduction in expenditure: In a given volume of output, the cost reduction approach must decrease the cost per production unit.
  2. Increase productivity: For a given expenditure, it must decrease the unit cost and increase the output.

To fulfill these motives, the following are the techniques you can follow.


Technique 1: 7 Chakra

7Chakra technique is about the idealization of manpower, machine, and waste for a manufacturing plant to ascertain productivity and achieve cost reduction. It evaluates the entire value chain based on ‘what needs to be produced’ against ‘what is produced’ concerning quality, cost, and customer expectations.


The seven chakras are defined as:


1. Process Chakra

This chakra is responsible for standardizing and stabilizing your business processes. It identifies the non-value adding parameters that are translating into bad productivity. It is imperative to understand that your business will stay alive until your processes are standardized. Process standardization means clearly defining and fixing the output of a given process based on the resources available. It is also defined based on factors like Time, Cost, Quality, and Quantity, which is required by a given output.


2.Structure Chakra

Structure Chakra introduces your business to a new hierarchy model called the 3-layered inverted structure, which is:


  • HPPT (High-Performance Process) Team– includes frontline workers responsible for zero delays in service rendering
  • PAICC (Plan-Analyze-Improve-Coach-Certify) Team– includes managers and supervisors responsible for taking improvement initiatives
  • ADUM (Add-Delete-Upgrade-Modify) Team- includes HODs responsible for driving transformational outcomes


3. People Chakra

People Chakra involves allocating multifunctional manpower to every process. It builds at least three alternatives per process through cross-training. It establishes a decision-making hierarchy and optimizes the number of people, along with their skill set.


4. Technology Chakra

It evaluates the entire value chain and identifies the activities or processes that can be automated. This helps in cost reduction and revenue improvement. It also includes aligning process performance, measurement, and analysis with the help of technology.


5. Performance Chakra

It is important to know that the result of every action directly defines the performance of a given process. And, when it comes to performance, businesses wish to witness it as soon as possible. And, for this, it is essential that your people’s performance is monitored in real-time. This chakra does that.


6. Zero Delay Service Chakra

This chakra ensures that all the services and support that your customer demands are available on time with zero delays. It plans and schedules all activities based on time. Hence, the completion of every activity is now predictable, and there are fewer chances of zero delays in the service.


7. Subconscious Chakra

It is important to understand that the human mind functions based on the experience gained from the past. Although helpful, this can also restrict them from adapting the change that you offer them. The Subconscious Chakra is about overcoming the past feeds and replacing them with new ideas. It is responsible for bringing innovation.


Technique 2: 3TSOP

3TSOP is a model in which three Ts with respect to a process, activity or task are defined for setting clear expectations and making informed decisions. The three Ts are defined as Test, Tolerance, and Target of a given a process, activity or task. The main idea of 3TSOP is to gain deeper insights into your process workflow and increase its scientific reliability and adherence. Attaining this helps in significant cost reduction and revenue improvement.


Technique 3: ERP

Enterprise Resource Planning (ERP) is a one-stop process management solution. It automates business processes that include Human Resource, Machine Maintenance, Project Management, Order-to-dispatch, Procure-to-pay, etc. Such processes, when automated can save a lot of time as well as cost.


One of the most implemented cost reduction techniques, ERP solutions, free your manpower from redundant tasks and make them more productive. You can employ your manpower in doing core business activities that actually require their skill set and talent.


ERP solutions speed up your processes, and you are most likely to deliver your services/ products on time and in full to your customers. Promising zero delays and defects in service/ product rendering, ERP solution also contributes to revenue improvement of your business.


Technique 4: Automation

When it becomes hard to maintain productivity, speed, and customer expectations, investing in an Automation solution is a prudent choice. In an automatic process, you can install robots or a system that manages an entire or small part of the process with little to no human intervention. This further speed up the process coupled with a significant cost reduction strategy.


Customers experience keeps on changing with time. And, the same process or system cannot ascertain the end product quality and delivery time. Therefore, to rule the market for a longer time, it is important to offer full customization options to your customers. And, Automation solution promises that.


Automation solutions help in increasing industrial productivity. The manufacturing plant can achieve a high production rate with faster-working processes and machines. Without compromising on product quality, automation solutions can get more work done in minimum time. The solutions can easily replace tasks that are too complex or challenging for humans, ensuring safety and promptness in producing the manufacturing unit.


Advantages of implementing cost reduction techniques

Good Financial Impact: Techniques of cost reduction save time, manpower, and time. You can deliver more with the available resources and improve your revenue.


High production rate: With the introduction of automation and AI solutions, your machines can work faster, and you are more likely to deliver more production units in a day. Without compromising on quality, you capture more customers and huge market space.


Ease of manpower management: The ERP solutions help in balancing and prioritizing the whole workflow based on months, weeks, and hours. You get to know who is helpful and what is not translating into revenue generation. It becomes easy to capture blackholes and eliminate them timely following beneficial cost reduction techniques.


Zero delays in product delivery: By implementing cost reduction techniques, you can get more work done from your machines in minimum time. You are able to make the most effective use of your machines, manpower, and processes. You are most certain about the time of end product delivery.


Improved manpower safety: You can make your factory smart and manpower smarter by implementing automation solutions. The solutions can help taking up challenging and complex tasks, thereby ensuring manpower safety. The chances of factory accidents diminish considerably.


In addition to these, there are other benefits to implementing cost reduction techniques in your manufacturing plant. To know more about these techniques and their benefits, you can contact our experts at your ease.


If you believe that there could be nothing wrong with your plant or organization, you need to get out of the oblivion state. Any process, method, people, machine, and material have a tendency to get outdated. And, therefore, periodically, there is a need to reorganize them or completely replace them with newer or latest ones. And, this is what cost reduction techniques are all about. It standardizes your 5Ms (Money, Manpower, Methods, Materials, and Machinery) and reduces waste.