Seven Ways to Reduce Cost

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7 Ways to Reduce Cost
August 7, 2007 By Ron Pereira 4 Comments
I finished the book Gemba Kaizen by Masaaki Imai.  It was quite good and I highly recommend it.  It is chalk full of excellent tips like 7 ways to reduce costs in gemba (as Mr. Imai phrases it).  They are: 1. Improve Quality:  Imai stresses how good quality is a prerequisite to making lean work.  He even speaks about things like control charts which you don’t find mentioned in many lean books. 2. Improve Productivity: Productivity improves when less input produces more output.  The book stresses how freed up human resources should be used for more kaizen (not fired). 3. Reduce Inventory:  Inventory can be nasty stuff if not controlled.  It takes up space, slows cash flow, and all kinds of other nasty things. 4. Shorten the Production Line:  Long, football field like, assembly lines need to go.  When shortened we reduce all kinds of muda (i.e. transportation, motion, waiting, etc.). 5. Reduce Machine Downtime:  Next to quality, Imai stresses an excellent Total Productive Maintenance program is essential to TPS.  Like jidoka, TPM doesn’t seem to get the love it deserves from western lean practitioners.  Not sexy enough I guess.  Funny I mention this lack of love since I just realized I have never blogged extensively about TPM before.  Guess I just found my next series topic! 6. Reduce Space:  Imai estimates that most manufacturing companies use four times as much space as needed.  Like long production lines using too much space invites muda (i.e. inventory) to come.  When we free up space we should aim to add more capacity after getting after our sales force to get us some more business! 7. Reduce Lead Time:  This is perhaps the funnest aspect of lean.  We simply determine the time it takes between getting an order and collecting payment for the finished product… and then shorten it.  Once we shorten it we do it again, and again, and again.  And that, my good friends, is what this stuff called lean manufacturing is all about

10. How to Reduce Costs
Paying The Right Price
Your goal should be to pay the right price for prosperity. Determining that price for your operation goes beyond knowing what your expenses are. Reducing expenses to increase profit requires you to obtain the most efficient use of the expense dollar. Look, for example, at the payroll expense. Salesclerks are paid to sell goods, and their productivity is the key to reducing the payroll cost. If you train a salesclerk to make multiple sales at higher unit prices, you increase productivity and your profits without adding dollars to your payroll expenses. Or, if four salesclerks can be trained to sell the amount previously sold by seven, the payroll can be cut by three persons. An understanding of the worth of each expense item comes from experience and an analysis of records. Adequate records tell what has happened. Their analysis provide facts which can help you set realistic goals, you are paying the right price for your store's prosperity. Analyze Your Expenses

Sometimes you cannot cut an increase item. But you can get more from it and thus increase your profits. In analyzing your expenses, you should use percentages rather than actual dollar amounts. For example, if you increase sales and keep the dollar amount of an expense the same, you have decreased that expense as a percentage of sales. When you decrease your cost percentage, you increase your percentage of profit. On the other hand, if your sales volume remains the same, you can increase the percentage of profit by reducing a specific item of expense. Your goal, of course, is to do both: to decrease specific expenses and increase their productive worth at the same time. Before you can determine whether cutting expenses will increase profits, you need information about your operation. This information can be obtained only if you have an adequate...
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