Before you invest on something, you would surely want to know how you can reduce costs on it. That is a common thought in the market, which is why there is a formulated cost reduction strategy earlier in the market for you and the many yous who are also in the look for the most practical ways of investing over something.
But how does this cost reduction strategy works really? This strategy works not only to reduce costs but also eliminate and modify some of the unnecessary manufacturing activities that increase the operating expenses of an investment.
Here are some of the manufacturing parameters that you may want to use the cost reduction strategy on:
• cost per unit ($/unit)
You can effectively lower the cost of an investment by keeping its manufactured products consumption at the minimum, say cut cost per unit. You can do this by maximizing the overhead or/and raw materials of each unit.
Packaging and distribution are also among the huge costs that a unit can have so these are some avenues that you may want to explore.
• man-hours/unit
The biggest costing of any investment is overhead. You have to be very particular with this as man-hours/unit takes about half the cost of each unit. If you can find an efficient manpower, you can surely use the cost reduction strategy in your man-hours. For this, you will need the human resource management of the company you are investing at to look and check all possibilities of finding these types of people.
• units produced/unit time
It is also good to know that effective people are working at your company or a company where you have an investment.
These people can surely make as much units as possible under a particular span of time than the regular employees. If you will compensate these people accordingly, you will be able to encourage more employees to be effective and thus reduce costs on additional manpower when the demands become too high.
• break down time (%)
Break down time is inevitable, but is can be converted into less productivity and thus profit. This is a negative side for your investment because you will still pay these people even if they haven’t worked for that they to generate income.
To prevent this from happening in the future, you should use cost reduction strategy in the form of administering regular maintenance for your equipment and delivery vehicles. Of course, you don’t have to do this on your own. You simply have to hire a maintenance pool who will take care of the regular maintenance of your investment equipment and transportation tools.
• change over time ( min/hrs )
Remember that overtime will cost you more than the regular pays you have to put on with each of your investment’s employees so make sure that you keep them at check.
Doing so will keep them from wasting their precious time, which is highly important in the production and generation of profits. Make sure that every task is at a specific timing. This will keep them at the right track and production will be on time.
• waste (%)
One of the greatest loses an investment can have is wastes. These may be products that should’ve been generating income but have not reached distribution or man-hours that are futile.
You don’t have to deal with such kind of wastes if you want to reduce costs. Make sure then that everything is at check, from the products to the labor and services of your investments. Doing so will keep everything systematic and thus productive.
• defectives (%)
All defective or non-functional products are considered as loss for your investment. You can minimize generating defective products by maintaining an effective work force and production methods.
This could also be true to manpower. People who are not as productive as the average employee are shy from useless.
You shouldn’t be putting up with these types of people and hiring replacements would be a lot more productive for you. If you are on a cost reduction strategy, this is one thing you should be doing.
• fuel consumption (k therms/unit)
Fuel consumption may or may not be a loss for your investment. If you are spending for it to transport your people or your manufactured goods, this is one alley you would want to check on.
• electricity consumption (kwh/unit)
Electrical consumption can be one avenue to cost reduction strategy.
You see, electricity consumption is one of the biggest consumptions in your business or investment which you may reduce by making a very systematic tactic on how to reduce its use. In the process, just make sure that you don’t imperil your production by cost cutting on this part.