With an economic slowdown in parts of the global company, cost reduction seems to be important for companies to improve profitability and remain competitive. The course of Cost Reduction Program is used to cutting costs to enhance profitability. Usually, this program being implemented when a company is facing financial problems and it must "tighten its belt". Without causing damage to the organization, this program is expected to achieve results that flow to the bottom line of the financial statement. In other words, without impairing their suitability for the use intended or diminution in the quality of the product, it can be achieve in real and permanent reduction in the unit cost of goods manufactured or service rendered.
In the real life situation, most of the companies are believe that provide a memo to all employees ordering budget cuts is all it takes to reduce expenses. But this kind of approach will causes a lot of internal problems in terms of lowered employee morale. Because of this lack of planning, it will seriously harm a company's ability to persist in producing quality products and services. Thus, management planning is importance for an effective cost reduction program. It is needed to have a thorough understanding of company expenses, the desire to continue to satisfy customers as well as a vision of the company future. In other words, this cost reduction program should be implemented with a thoughtful plan of action for employees that are involved in the process.
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A company can use traditional approaches to reducing cost like cutting travel expenses or finding new production materials. They also have other option for reducing costs in a non-traditional manner such as revise current structure of production and service delivery, blend current and new techniques in-house or form cooperative arrangement with other industry members. Whether traditional or non-traditional manner is taken the same principles apply. It is important that an effective cost reduction plan should be align to the company's purpose and long-term goals.
Cost reduction, should therefore, not be confused with Cost control. Cost control is a different concept with cost reducing. Control implies an action in restraint. It can be says that they are restrict from growing larger than they should grow when expenses are controlled. While the cost reduction concerns reducing expenses that are too high. In other words, cost control is an approach that costs are managed and monitored to assure it does not exceed the projected amount whereas the cost reduction is a method that costs are reduced from the projected amount.
Other than that, cost control is achieving its objective which known as cost target. It ends when the targets are achieved. For cost reduction, it has no visible end and it is directed to investigate any possibilities to improve the targets. It is a continuous process. Cost control pursues to achieve the lowest possible cost under existing conditions. While for the cost reduction, it does not recognize any condition as permanent since a change will result in lowering the cost. Moreover, Cost control aims to maintaining the cost under established standards. Cost reduction is different, it focus on reducing costs. It transform all standards and strives to improve them continuously.
Cost reduction program is useful in helping company in improving profit margins as well as reduce the waste. The higher the profits, the better the stable the company will be. It increases the share value, facilitates in the collection of capital and also improves investment opportunities. Â By using cost reduction program, the country also stands to gain immensely. It enables the industry to maintain the prices of exportable products and consequential increase in foreign exchange savings, internal revenue will also increase through more tax savings.
Moreover, it assists manager in discover new opportunities and products and also overcome stagnation or inadequate growth. Through the cost reduction program, the society will be benefited by the reduced prices. It enhances competition position in the marketplaces and industry as a whole will endeavour in improve the productivity and transfer the advantage of such programs to the society. It will also increase customer satisfaction and reliability. Not only that, employee of the industry may also be benefited through improved staff welfare amenities and wages. They will also build focus, teamwork as well as better morale.
Always on Time
Marked to Standard
Cost reduction programs are importance for the company to further market leadership. It is critical to a company's long term success at satisfying customers and investors. Company has to learn how to sustain cost reduction over time through its management decision-making and the organizational culture.
Literature reviews/Case study/Research findings
Total Quality Management
Total Quality Management (or TQM) is a management concept coined by W. Edwards Deming. The basis of TQM is to reduce the errors produced during the manufacturing or service process, increase customer satisfaction, streamline supply chain management, aim for modernization of equipment and ensure workers have the highest level of training. One of the principal aims of TQM is to limit errors to 1 per 1 million units produced. Total Quality Management is often associated with the development, deployment, and maintenance of organizational systems that are required for various business processes.
TQM Management is a very broad continuous improvement initiatives that many organizations have jumped into the band wagon aimed to drive their business into sustainable profitability. Many organizations started the TQM journey with full leadership commitment and total employee involvement. Laid the continuous improvement culture and quality management foundation, provides various TQM training in the use of TQM Tools, implemented the TQM tools in improvement projects. But not many organizations are able to sustain its continuous improvement momentum to create the total quality culture.
The international and national competitive environment is in a process of constant change by the globalization of markets and increased interdependence of economic agents. This process of change has brought increased demands on the organizations competitiveness and the customers have gained a central role in the organizations focus. Total quality management is considered to be an important management philosophy, which supports the organizations in their efforts to obtain satisfied customers. However, traditional work practices and management attitudes do not conform with total quality management, which could cause a resistance towards an implementation of total quality management. Implementation of Total Quality Management requires regular review its performance and effectiveness. A typical management review meeting is held to review its implementation, project status and project performance.
Implementing TQM management alone cannot ensure its long term business success. The leader has to drive the TQM implementation in accordance to the TQM principles, follow the TQM model, provides regular TQM training in the application of TQM tools, get total employee involvement in their continuous improvement culture building and keep up its momentum.
The theoretical analysis reveals the implications there are in building a quality culture. The analyze implies that building a quality culture would require a matching human resource strategy, which would involve the human resource management, the organizations way of working as well as the human resource policies and practices. In context to this, was it furthermore argued that the literature of total quality management often have a hidden implicit agenda, which call upon a topdown method for the implementation of total quality management. This could underestimate the difficulties, there are in gaining a commitment to continuous improvements in the current pluralistic industrial relation culture. The empirical analysis in the Grundfos Group reveals the different roles of the human resource management and shows that the implementation of total quality management has posed quite a lot of human resource challenges to human resource employees such as, motivating knowledge workers, obtaining employees satisfaction, overcoming communication barriers, solving problems associated with vastness of the organization.
This study has shown that there is a relationship between successful implementation of total quality management and human resource management. It has also shown the human resource implications of total quality management. It has reflected the fact that the human resource tasks include basic elements in the implementation of total quality management, based on the underlying assumption that employees and managers will be forced to practice continuous improvements. The various roles which a human resource management could assume in the implementation of total quality management were presented. There were several roles from a purely administrative role view, with faint visibility towards a more strategic role, with a wide type of visibility within the organization. In this connection, various elements were brought up each of which would have a bearing on the role of the human resource management in the implementation. Overall it would seem that total quality management and human resource management have quite a lot in common and would be able to contribute successfully to the accomplishment of the organization aims.
Activity Based Costing
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Marconi's Board of Directors strongly supported the implementation of ABC in Marconi after facilitating the method. Besides substantial material and resources, personnel and time were also allocated in this project. The senior managers are one of the most crucial people in a company. So, they were informed to quickly and effectively implementing the ABC. The commercial department (Consumer Markets Department and Carrier Services & Network Planning Department) were given priority in the needs of information because they are the one dealing with the market pressures and cost information demands of ICP/PT. As for other Marconi departments, their priority of the needs of information is lower and less important as compared to other departments.
Managers who tend to disagree with ABC tend to criticize this cost reduction method. So, ABC faced severe criticism and internal resistance from the very beginning as it was not fully accepted by all managers of Marconi. Large fraction of complains came from the engineers in the production department. This is because they were the ones who are most involved in feeding ABC. They were against the fact that ABC was too detailed. Besides that, they claim that ABC did not contribute any advantage to them as well as to other managers. Furthermore, they did spent a lot of time feeding the system. The resistance of the engineers from the production department towards the ABC system is due to the fact that they cannot accept the growth in power that the commercial department had already gained. In their opinion, ABC contributes more advantages to the Board of Directors and the Marconi's commercial managers. This is because they need to supply cost data to the PT/ICP. Since they perceive that ABC is not useful for them, engineers from production department hardly uses the ABC system in their daily operation. The engineers made their decision based on non financial data such as the engineering control system and the personal databases. The engineers who disagree with ABC showed their protest by delaying the process of inserting inputs in the system.
On the other hand, the commercial departments who supported ABC are using it actively and widely as they are very satisfied with it. The reason why they were satisfied with ABC is because they can obtain relevant cost data for short run pricing as well as providing them with investment decision. The commercial department also thinks that the ABC is not too detailed and it is suitable to be used in their daily activities.
When the managers of the production department feel reluctant to use the ABC system, it will definitely influence the workers to not applying it in the job. Since production managers were unenthusiastic about ABC, they did not encourage their subordinates and employees to complete their PMO which allocates employee time to activities based on the completion of time sheets. So, as a result, workers tend to allocate their labor time as late as possible by postponing it. Besides that, the PMO that was supposed to be completed were not always accurate and it was only partially completed.
As a result of this protest by the production managers, the management accountants often received late inputs into the ABC. Due to their irresponsible action, Marconi's ABC system did not generate cost data punctually from the very beginning. Due to this, commercial managers often made complain due to the lateness in receiving the cost data. The lateness of cost data would cause the commercial manager to have difficulties in supporting the pricing decision and investment decision. Commercial managers will make use of the latest available ABC cost data as well as the information on the competitors pricing strategies to establish prices.
As for investment decision making, commercial managers act similarly to the pricing decision by using the latest ABC data. Receiving late data is definitely a big issue if decision making is concern. However, they do not seem to be greatly disturbed by this situation whereby the data provided by ABC were often too late. According to the commercial manager, although it is not easy to obtain accurate and punctual data, ABC system provides more accurate cost information as compared to Marconi's previous MAS. In conclusion, ABC system is so far the most reliable system and Marconi has decided to stick to it till there is evidence saying that the data provided by ABC system is not reliable.
Value engineering is the analysis of theÂ functionsÂ of a project, product, service, or supply to improve performance, reliability, quality, safety, and life-cycle cost.Â Value engineering is more than just a cost reduction exercise and should be applied in a structured and systematic manner. Value engineering maximized value through functional analysis which include improving, make cost effective design, redesign of products, processes, projects or services. The maximized value is approached from a customer viewpoint and the related function is expected to operate at the least cost without affecting its quality and reliability. According to Yoshikawa, Innes &Mitchell (1995), cost management is a continuous process which integrated activity within an organization's products or services entire life cycle. Cost management is most effectively applied during pre-production phases (planning and design) where greatest impact can be achieved.
An organization needs to reduce unnecessary cost by identifying and eliminating waste at the earliest opportunity. Unnecessary cost according to Miles (1963) does not contribute to quality, life, use, appearance and customer features of products. Reasons for the unnecessary cost to be incurred are due to the poor design, incorrect materials selection, poor building ability and habits. When unnecessary cost of a product or system, which is irrelevant to the specific functions, is removed, cost is reduced and performance is enhanced or maintained.
Value engineering was used as a cost control or cost reduction exercise within the case company to meet customer requirement, price competitiveness, cost reduction and customer confidence. To attain value engineering, an organization must have a planned and systematic innovation of product. Based on the diffusion of innovation theory, the perceived attributes of value engineering in relation to relative advantage and compatibility was found to determine the adoption of value engineering in the automotive component manufacturing company. An indicator for the degree of compatibility of a new idea is when it meets the needs of the customer. The needs of the customer are determined by the change agents and in this case, the major customer of the company. Centralization, product diversities, management support and initiatives are the factors that also influence organization to adopt value engineering. Degree of competition and customer requirement are the two influential environmental variables for value engineering. Besides, developing and establishing value engineering program requires strong support and commitment from the top management.
The case study examines how value engineering is implemented, its effect and the factors that lead to its adoption and the barriers experienced within the company. The method chosen was based on the intention of the study which is to specify the type of information to be collected in advance of the study and to allow issues to emerge from the investigations. The aim of value engineering is to reduce the rejection rate and manufacturing cost of a particular part or component. The cost saving per unit can be measured by comparing both old and new purchase price to arrive at cost saving per unit. This is then multiplied with the usage of the specified material in determining its total material cost saving.
Value engineering is conducted within the company based on the requirement of their two major customers. They are required by their major customers to reduce the cost of the components and parts supplied through finding alternative equivalent materials. These proposed materials must meet the stringent requirement of these customers. Since the company is competitive in its market, the company needs to adopt value engineering as to reduce the cost of products to be more profitable and outstanding. However, there are impeding factor to value engineering adoption which is lack of awareness and knowledge on value engineering. Those who involve in value engineering do not have proper training and courses on the fundamentals of value engineering tools. All in all, perceived attributes of value engineering innovation, centralization, product diversities, management support and initiatives, customer requirement, competition level and optional and authority innovation-decisions were the influential factors in value engineering adoption.
Target costing can best be described as a systematic process of cost management and profit planning. The six key principles of target costing are price-led costing, focus on customers, focus on design, cross-functional involvement, value-chain involvement, and a life-cycle orientation. Essentially, companies use target costing to establish concrete and highly visible cost targets for their new products. The process begins when top management establishes a target cost for a new product. A cost estimating group will then decompose the target cost for the product as a whole into cost targets for subassemblies and individual component parts-engine, transmission, seats, and so on. They analyze the product's design, raw material requirements, and manufacturing processes to search for cost savings opportunities. The cross-functional teams employ a variety of management tools and initiatives to help them achieve their objectives.
The best practice companies demonstrated certain commonalities in their operations and the way in which they supported the target costing process. They all had very effective organizational structures, responded to the "voice of the customer," streamlined their product development process, and actively engaged their supply chain to achieve target costing objectives. There are four companies that had achieved the most success in each area. At each best practice company, target costing is supported by a matrix organizational structure where a vertical, functional organization combines with horizontal, cross-functional teams. Each team is cross-functional and includes members from design engineering, manufacturing engineering, purchasing, production, and finance. The target costing system determines cost objectives and performance goals for each platform team, and meeting these goals is an important component of team members' annual performance reviews. The target costing system at DaimlerChrysler makes use of a "toolbox" of management initiatives to improve productivity and reduce costs. The toolbox includes value engineering/value analysis, design for manufacturing assembly, paper kaizen, and lean manufacturing. Each initiative is implemented through workshops composed of multifunctional teams. The teams vary from five to 30 individuals and meet anywhere from one to five days. The workshops are "working" sessions where participants brainstorm, troubleshoot, and generally try to solve problems and improve operations.
The companies take it a step further, which they examine whether or not their customers are willing to pay for the design innovations. If the cost of the innovation is greater than its value to the customer, the innovation should be abandoned. Through target costing, the costs associated with adding new components or changing aircraft configurations, such as moving kitchen galleys to new locations on the airplane, are much more visible. Any changes that are incorporated into a new airplane must satisfy a life-cycle-based business case. In other words, customers must be willing to pay for the incremental, nonrecurring costs of the change. Furthermore, many of the technological advancements are expensive to implement on a "piecemeal" basis. Therefore, as technology improves, some strategic advancements are incorporated into existing models, and others are held "in a drawer" until a new family of airplanes is developed.
In addition to internal operations, each of the best practice companies relies on cost savings opportunities from its supply chain to meet cost targets. Both companies view their supply chains as part of an "extended enterprise" where they share design information, cost information, and establish inter-company teams to meet cost reduction goals.
Once companies have the tools and systems in place to support target costing, they often develop a standardized approach for achieving their target costing objectives. A cost improvement team is then assembled from product design, manufacturing engineering, production, marketing, and purchasing to determine how to close the gap. Initially, the group evaluates component part substitutions that would reduce costs but still provide the product features and benefits necessary to satisfy customer requirements. The group also considers opportunities to reduce costs through efficiency improvements.
In conclusion, all of the best practice companies employ a cross-functional organizational structure, listen to the "voice of the customer," emphasize cost reduction during the new product development cycle, and are very effective at removing costs throughout the supply chain. For these companies, target costing has proven to be a very effective means of cost control and profit enhancement.
Just In Time Costing
JIT is a cost reduction approach originated in Japan. Nowadays, a lot of companies implement this approach in an attempt to reduce any type of waste associated with manufacturing. For example, waste of materials, space and time. Besides, JIT is accomplished through the application of elements which require employee involvement and teamwork. In this case, suppliers should be considered as a part of team. The advantages of JIT were found to be better quality, reduced costs and the ability to produce product which is highly desirable in the marketplace. Whereas the disadvantages were seen as the cost involved, the openness required by the development process and the need to manage change.
Production executive of Proton declare that JIT approach is definitely used by proton. However, he stress at the transitory JIT rather than strategic JIT. Transitory JIT is a temporary management technique to provide some inventory and labor cost savings while strategic JIT is cost reduction practices upon total business. Even though Proton did not have a model of supply chain management, they do have other supporting mechanisms to complement the JIT system in Proton. For instance, Quality, Cost, Delivery (QCD) targets and "3M" and "2S" improvement programs. The "3M" approach is an improvement programs which focus on the elimination of these "3Ms" which are Mura (Irregularities), Muri (Excessiveness) and Muda (Wastefulness). Whereas the "2S" approach is an improvement program which is uses to attain company's goal. It requires tidying up (Seiri) and ensuring that things are put in place (Seiton).
Proton is now implementing a more generalized signal system which the employees will have short daily meetings and supervisors was held to ensure movement of the inventory is under control. Research shows that, out of 13 major JIT practices, 8 have been exists in Proton. For illustration, small lot sizing, Kanban, JIT purchasing, quality circle, preventative maintenance, mixed model production, level production and U-shaped layout. There has been no compression of the Proton plant as it is quite impossible. Cellular manufacturing also did not practice by Proton due to non-flexible workforce. However, they are now providing constant training and workshops to attain workforce flexibility in future year. Although the inventory is transferred to the assembly line only when needed, Proton still maintains an average stock of one or half a day. This is because the demand for Proton car is high.
Furthermore, Proton also exercises JIT practices externally. Both single sourcing and dual sourcing policies have been executes by Proton. Typically, single sourcing policy is stressed in JIT system as it creates confidence in supplier. Material Requirement Planning is used by Proton to plan quantity of the material needed to be import or purchased locally. On the other hand, some of Proton's suppliers set up their own "distribution centre" near the car factory to ensure frequent deliveries could be done smoothly.
According to Proton's supplier, they believe that close relationship between manufacturers and their suppliers is very important for JIT. Trust and commitment is needed so that they can perform the work effectively and efficiently. In order to implement JIT, frequent deliveries and good control of raw materials is also required to make sure Proton have sufficient materials. To avoid Proton's production line being stopped due to insufficient or delayed arrival of the raw material, machine set up and break down time of the supplier should not be long.
In conclusion, Proton is definitely enjoying the benefits of JIT practices that it uses. However, there are still some hindering factor to full JIT such as lack of trust and communication with supplier. Therefore, Proton should exercise continuing improvement so that it can achieve full JIT in future.
Total Quality Management
Total Quality Management is a management concept that seeks for continuous improvements in products, services or production processes. The basic principles of total quality management include involvement and commitment of employees and management, and injecting a customer oriented approach for advantages in the competitive market. There are a few other approaches to improve total quality management which includes process oriented, improvement tools, measuring and organization approach.
Considering the current trend, increased product quality and a higher extent of liability towards customers no longer stay a mere possibility but are vital if market shares are to be retained and further developed. In private and public companies that focus on quality product and services, they will obtain quality certificates and total quality management from the development.
Customer orientation does generate throughout the organization a shared aim for all activities while integrating quality in the design as well as in the specifications. An organization may provide the right design quality, a product which customers would want to buy - but could lose out by not having the right specifications required. Total quality management attempts, by way of teamwork and cooperation, to involve all organization levels in delivering quality to internal customers, and ultimately to external customers.
The most efficient method to create improvement is to let the staff performing the particular work identify and implement the particular improvement in their daily work. Monitoring the cost of quantity and customer satisfaction denotes a recent effort in total quality management.
Monitoring the cost of quantity and customer satisfaction denotes a recent effort in total quality management. The cost of quantity may prevent expenses such as routine inspection maintenance. Achieving successful implementation of total quality management will thus require all staff to effect continuous improvements as an integrated part of their daily work.
The total quality management literature argues that commitment by the staff and by the middle managers to total quality management should be generated by way of education and training as well as by personal experience. The middle manager function in total quality management organization is to provide new abilities and a change of attitude to their staff.
An implementation of total quality management might evoke a fear of losing workplaces. It should then not be taken for granted that staff and middle management would necessarily be enthusiastic about total quality management.
Activity Based Costing
Activity Based Costing (ABC) proponents have pointed out that the use of such bases, which are greatly influenced by the quantity of production output, lead to incorrect costing. Some company with high levels of overhead costs that are not primarily determined by volume means of enhancing organizational efficiency, and addressing the limitations and pitfalls of traditional management accounting shares its limited assumptions about the world organizational actors inhabit.
Some overheads are not properly attributed to products because some overheads are incurred at facility-level, which makes them impossible to be allocated and costs of activities can only be suitably allocated to cost objects when the relationship between the cost and the object cost is strictly respected
If a company does not have an adequate costing system, it could have a direct and public impact upon its profits and share price. ABC is believed to be highly regarded by important external constituencies which enabled Marconi and PT to publicize their 'modernization' drives and hopefully impress them. This system produced better costing data than previously. Managers believed it had improved the quality of data necessary for managing under the tough competition that made further price cuts an imperative.
Based on the costing information coming from ABC, people were able to compare the costs they were incurring with the costs they would support if they had outsourced activities. ABC has improved the company's efficiency and competitiveness. From the beginning ABC met with severe criticism and internal resistance from some company's managers. Most came from engineers in production who were most involved in feeding ABC. These engineers complained that the ABC system was too detailed, and not useful either for them or most other managers, they spent too long feeding the system.
However, ABC was satisfactory for segments of the organization dealing with institutional pressures but not for those dealing directly with the efficiency of operations. Different opinions about the efficacy of ABC between these segments fuelled existing conflicts over relative power within the organization.
Value engineering is defined as skill which is to maximize the value of products, services or processes such as manufacturing processes of an organization. It is also defined as a technique to increase the value of the product from the standpoint of buyers or consumers without affecting the quality of the goods, products, services, and processes as well. Value engineering basically will focus on achieving the functions of the product pr process at the lowest cost and also analyzing the function of the products or process in a organized way.
However, many could argue that once the costs of production of the process or product were decreased, the quality of it will be affected or will be neglected. This is not true actually. Why? This is because value engineering will only abandon those unnecessary costs, which is not needed in contributing the good quality of product, such as poor design of product, incorrect materials selection or poor built ability and habits. Therefore, the quality of the product will be still remained as usual or even improved after the unnecessary cost which is irrelevant to the particular function is being removed.
Value engineering is also a method that considers the quantitative and qualitative choices in order to achieved target cost wanted. Quantitative choices are the factor in affecting decision making which can be defined in numerical terms, while qualitative choices are these factors which could not be defined in numbers.
Value engineering is applied to type of sectors. At first, this technique was used in manufacturing industries and was expanded to other sector such as construction, service, government, agriculture, education and healthcare. Because of the obligatory requirement, this technique is widely used in construction industries in US. Value engineering is said that as a equipments with many advantages such as cost saving and value for money successfully by majority of countries.
Various approaches to value engineering is used by many organizations. The approaches are "40 hour Workshop", "Charette", "Contractor's Value Management Change Proposal (VMCP)" and Job Plan. One the most common used approach is 40 hour Workshop. It is conducted over a period of 5 days time. It involves the appraisal of the sketch design and documentation by another team. The workshop will normally take place the 35 percents of the design and abstract the remaining 75 percents. As a result, cost can be saved effectively and quickly.
Another approach will be The Charette. This approach is undertaken after the project was briefed and design team allotted. At the first stage, the actual design is not confirmed yet and this approach comprises representative from customers and the design team. This is to get more idea to meet customers' expectation and to reduce the cost.
Job plan is another approach which is an organized series of action for conducting a Value Studi and seek for the suitable implementation for any changes needed. In Job Plan, value evaluation has several steps, from inception to conclusion, in an organized manner, to achieve value of product of services needed or wanted by consumers. Through this, product or service can be effectively and efficiently analyzed in developing the most effective of alternatives to achieve the function of product or service.
Target costing is a method which involve an organized process of cost management and profit planning to reduce the overall cost of product over its entire life cycle with help of the production, engineering , R&D and so on. At first, companies will set a target cost which is highly visible and concrete. In order to effectively control the cost and maximize the profit, companies will set relatively insistent or aggressive targets. Then a cost estimating group will faster the target cost of the new product into cost targets for subassemblies and individual component parts such as engine, transmission, seats and so on.
The closing of the 'gap' or the different amount between target cost and cost projections for the new product is the main mission to be established in target costing process. How to establish the mission? Through cross-functional target costing teams, the product's design, raw material requirements and manufacturing processes will be analyzed to reduce the costs of production. The teams will employ a variety of management tools and initiatives to achieve their goal.
For example, in order to achieve the target costing, U.S. Operations for Daimler Chrysler makes use of management tools or initiatives to improve productivity and reduce the cost. The tools would be value analysis, design for manufacturing assembly, paper kaizen, and lean manufacturing. Table below is the description of each management tools to achieve target cost.
Tools of management initiatives
To increase the value of product to customers through improved designs. The benefits of the new design to the customers must more than the offset of the original cost to the target cost.
Design for manufacturing assembly (DFMA)
Evaluate the effectiveness and efficiency of the design with regard to assembly operations. It is also to abridge the assembly processes and minimize the assembly components. Thus costs are reduced.
To promote the continuous improvement concept. It is to stimulate the production processes and to optimized on paper before incur ant expenses.
Occur after product launch and extends beyond Daimler Chrysler to include its supply chain. The benefits from this will reduce setup times and optimize the workforce.
Just in Time Costing (JIT)
Just in time costing is defined as disciplined method to maximize overall productivity and eliminate waste. While using a minimum amount of facilities, tools, materials and labor, it makes sure cost effective-production and delivery of only the needed quantity of parts at the right quality, right time and place. It is to be done through the application of components which require total employee involvement and teamwork. This method can be described as simplification. It focuses on the importance of the quality because any form of non-conformance is pure waste leading not only to scrap and rework but to waste of management time. It also uses the teamwork as urge toward continuous improvement.
For example, Proton's production executive declared that they are definitely using Just in time costing approach. It can be divided into two categories: transitory and strategic. Transitory just in time is a temporary management method to provide some inventory and labor cost savings while strategic just in time is a cost reduction method upon total business. Proton is implementing a more generalized system which will make sure that employees will be having short daily meetings and supervisors was held to make sure flow of the inventories are under control.
Besides, Proton also uses this approach externally. There are two different policies being used by Proton. The first is single sourcing policies, which is stressed by Proton, as it gives confidence to supplier. Material requirement planning is used to plan quantity of the material needed to be imported or purchased locally. On the other hand, suppliers will have their own distribution centre near the factory to ensure frequent deliveries could be done smoothly
Cost reduction program is important for a company to reduce the expenses or cost to maximize the profit. Total Quality Management (TQM) increased the quality of the product and for customers, company higher extends the liability to stay a mere possibility but the market shares are to be retained and further developed if it is vital. In TQM, a particular work like identify and implement performed by the staff might create the improvement in their daily work. For activity based costing (ABC), highly influenced by the quantity of production output. People are able to compare the costs if they had outsourcing activities that incurring the costs. Besides that, value engineering is to maximize the value of products, services or processes. It can defined as a technique to increase the value of the product from the standpoint of buyers or consumers without affecting the quality of the goods, products, services, and processes. Value engineering basically focus on achieving the functions of the product pr process at the lowest cost and also analyzing the function of the products or process in a organized way. Target costing faster the target cost of the new product into cost target for sub assemblies and individual component parts. Just in time costing (JIT) maximize overall productivity and eliminate waste, which means the company will produce or made the product once they received the order with the ready intermediary goods into finished goods. Cost reduction programs are implemented by setting goals, creating, evaluating, and implementing options, and measuring the outcomes. The work flow preserves ideas that are generated by the employees. Lastly, most of the companies will adopted cost reduction program to help in their business to generate more revenues and reduce the costs.