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Cost Reduction Analysis: Tools and Strategies

ISBN: 978-0-470-58726-3
336 pages
May 2010
Cost Reduction Analysis: Tools and Strategies (0470587261) cover image
Discover the tools for knowing the costs your company should cut, without impacting its ability to deliver goods and services

New from Steve Bragg, this book provides the tools for determining which costs a company should cut, without impacting its ability to deliver goods and services. It explains how to use throughput analysis in order to locate bottleneck operations in a company, which in turn dictates where capital investments should (and should not) be made.

  • Delves into process analysis, to determine where excess resources are being used in a business process
  • Describes the total cost of ownership, showing how a single purchasing decision actually snowballs into a variety of ancillary costs
  • Shows how to create and use a spend management system to reduce procurement costs
  • Shows how just-in-time systems can be used to eliminate inventory costs

Cost Reduction Analysis: Tools and Strategies provides examples to show how much cost can potentially be eliminated to avoid drastic action later that can imperil your corporation's direction and future.

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About the Author xi

Preface xiii


CHAPTER 1 The Cost Reduction Process 3

Introduction 3

Need for Cost Reduction 4

Advantages of Cost Reduction 7

Disadvantages of Cost Reduction 8

Cost Reduction Politics 8

Cost Reduction Priorities 9

Cost Reduction Tools 11

Process Analysis 21

Process Analysis Tools 24

Key Cost Reduction Questions 28

Cost Reduction Reports 29

Metrics 34

Summary 34

CHAPTER 2 Selling and Marketing Cost Reduction 37

Introduction 37

Customer Mix Analysis 37

Customer Class Analysis 39

Sales Region Analysis 39

Dropped Customer Analysis 42

Price Setting with Throughput Analysis 44

Sales Productivity Analysis 46

Sales Effectiveness Analysis 48

Salesperson Analysis 49

Finding Throughput Problems in Sales 51

Sales Process Flow 53

Sales Deduction Systems 55

Collections by the Sales Staff 56

Marketing Cost Reductions 56

Sales and Marketing Metrics 59

Summary 60

CHAPTER 3 Product Analysis 61

Introduction 61

Target Costing 61

Targeted Price Increases 72

Eliminate Unprofi table Products 73

Add New Products 81

Outsource Products 83

Product Rework Costs 85

Custom Product Costs 86

Product Metrics 88

Summary 90

CHAPTER 4 Production Cost Reduction 91

Introduction 91

Throughput Analysis 91

Product Line Complexity 92

Production Flow 92

Cellular Manufacturing 93

Continuous Flow 94

Monument Equipment 94

Quick Changeovers 95

Assembly Line Confi guration 96

Assembly Line Length 96

Container Sizes 97

Source Inspection 97

Control Chart Analysis 98

Mistake Proofi ng 101

Expediting 102

Maintenance Planning 102

Machinery Standardization 103

Machinery Assignment 103

Metrics 103

Summary 104

CHAPTER 5 Payroll Cost Reduction 107

Introduction 107

Analysis for a Workforce Reduction 107

Cost of a Workforce Reduction 117

Alternatives to a Workforce Reduction 120

Manage Payroll Expenses at the Hiring Stage 123

Combat Institutionalized Pay Increases 125

Restructure Commissions 128

Restructure the Workforce 129

Hire Contractors 131

Other Types of Payroll Cost Reduction 132

Worker Adjustment and Retraining Notification Act 133

Payroll Cost Metrics 133

Summary 134

CHAPTER 6 Benefi ts Cost Reduction 137

Introduction 137

Benefits Administration 137

Disability Insurance 139

Life Insurance 140

Medical Insurance 140

Pensions 144

Seasonal Bonuses 147

Sick Time 147

Snacks 148

Training 148

Vacation Time 150

Wellness Programs 151

Workers' Compensation Insurance 151

Miscellaneous Perquisites 153

Free Benefits 153

Metrics 154

Summary 154


CHAPTER 7 Procurement Cost Reduction 159

Introduction 159

Standard Procurement Process Flow 160

Procurement Cards 161

Evaluated Receipts System 164

Additional Procurement Process Flow Changes 168

Supplier Consolidation 171

Supplier Relations 174

Additional Cost Reduction Considerations 177

Metrics 179

Summary 180

CHAPTER 8 Spend Analysis 181

Introduction 181

Spend Database 181

Spend Analysis 184

Spend Analysis Reports 190

Spend Analysis Rollout 193

Third-Party Spend Management Systems 194

Low-Cost Spend Management Systems 195

Metrics 196

Summary 197

CHAPTER 9 Maintenance, Repair, and Operations Analysis 199

Introduction 199

Problems with MRO Cost Reduction 199

MRO Cost Reduction Methodology 200

Distributor’s Viewpoint 208

Metrics 209

Summary 209


CHAPTER 10 Inventory Analysis 213

Introduction 213

Inventory Purchasing 213

Inventory Receiving 217

Inventory Storage 217

Bill of Materials 221

Obsolete Inventory 222

Miscellaneous Topics 225

Metrics 227

Summary 228

CHAPTER 11 Fixed Asset Analysis 229

Introduction 229

Fixed Asset Acquisition Analysis 229

Fixed Asset Installation Reporting 235

Postinstallation Audit 237

Outsourcing Alternative 237

Lease versus Buy Decision 238

Feature Reduction Analysis 239

Asset Commoditization 241

Monument Analysis 241

Facility-Specifi c Considerations 242

Fixed Asset Retention Analysis 243

Fixed Asset Maintenance Analysis 243

Fixed Asset Location Tracking 244

Fixed Asset Condition Tracking 245

Fixed Asset Metrics 245

Summary 247


CHAPTER 12 Throughput Analysis 251

Introduction 251

Theory of Constraints 251

Operational Aspects of the Theory of Constraints 252

Nature of the Constraint 254

Defi nitions for the Financial Aspects of the Theory of Constraints 256

Financial Aspects of the Theory of Constraints 257

Opportunity Cost of Operations 259

Locating the Constraint 260

Management of the Constrained Resource 264

Types of Policy Constraints 268

Constraint Buffer 270

Production Scheduling 273

Batch Sizes 278

Capacity Reduction Analysis 279

Work Center Utilization 280

Metrics 280

Summary 282

CHAPTER 13 Cost Reduction in Mergers and Acquisitions 283

Introduction 283

Integration Timing 283

Integration Planning 284

Synergy Realization 286

Integration Manager 290

Integration Team 291

Integration Communications—Internal 292

Integration Communications—External 293

Employee Integration—Qualifi cation Assessment 294

Employee Integration—Job Positioning 296

Employee Integration—Relocations 297

Employee Integration—Key Employees 297

Layoffs 300

Compensation Integration 301

Sales Integration 302

Process Integration 303

Technology Integration 304

Metrics 305

Integration Pacing 306

Summary 307

Index 309

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STEVEN M. BRAGG, CPA, has been the chief financial officer or controller of four companies, as well as a consulting manager at Ernst & Young and an auditor at Deloitte & Touche. He received a master's degree in finance from Bentley College, an MBA from Babson College, and a bachelor's degree in economics from the University of Maine. He has been the two-time president of the Colorado Mountain Club, is an avid alpine skier and mountain biker, and is a certified master diver. Mr. Bragg resides in Centennial, Colorado. He is also the author of Accounting Best Practices and Accounting Policies and Procedures Manual, both published by Wiley.
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