Are you a business student looking to learn more about cost reduction strategies? Whether you’re studying finance, operations, or management, understanding how to cut costs effectively without sacrificing quality is essential for any business professional.
In this article, we’ll explore real-life examples of cost reduction strategies and explain their workings.
🔝 Top 11 Focus Strategy Examples
- "Wal-Mart's $288 Billion Meeting" Article by Schlender
- Wal-Mart's Low-Cost Provider Strategy
- Apple Company: Value Chain Analysis
- Low-Cost Airlines' E-Business and E-Commerce
- The Concept of Activity-Based Costing Systems
- Activity Based Costing and Activity Based Budgeting
- Sources of Energy Review
- The Nature of Management Accounting
- Microeconomic Theory for Analyzing an Article
- The Global Household Brands: Marketing Strategies
- Cost Reduction Strategy in Supply Chain Management
💸 What Is a Cost Reduction Strategy?
A cost reduction strategy is a practice aimed at optimizing a company’s operational efficiency. This includes proper resource allocation, streamlining processes, and successful implementation of plans covering all business aspects.
What Is Cost Control and Cost Reduction?
To reduce costs, companies often employ two strategies: cost control and cost reduction.
|Cost control focuses on managing the expenses associated with a project or the production of goods.||Cost reduction involves optimizing the business model to reduce expenditures without compromising the quality of the product.|
What Are the Types of Cost Reduction?
When you think of cost reduction, you’ll probably think of reducing the workforce or the employees receiving a salary. However, there are many other, less radical techniques that a company could follow, such as going green, hiring a remote workforce, combining purchases, and replacing unproductive staff. We’re going to discuss them in more detail now.
✨ Cost Reduction Strategy List
As we’ve already mentioned, there are great many cost reduction strategies, and here are some of the most popular ones.
- Replacing Unproductive Employees
Many organizations have staff members who are not meeting the required productivity standards. Although management may delay releasing them for personal reasons, retaining such employees can be costly. In the long run, it may be more cost-effective to replace them.
- Prioritizing Productivity Over Work Hours
Promoting productivity over the number of work hours can lead to better job outcomes. Working overtime doesn’t necessarily result in increased productivity. Encouraging employees to focus on completing tasks will likely yield better results.
- Outsourcing and Hiring Remote Workers
Employers can save money on office space by hiring remote workers and freelancers. Studies show that remote workers are happier and more effective than those working in an office, with fewer sick days and higher productivity levels. Outsourcing can also provide high-quality products and services at a reduced cost.
- Reducing Costs by Going Green
Companies can reduce costs by replacing outdated appliances, lights, and fixtures with energy-efficient alternatives. Going paperless will reduce paper usage, while smart thermostats can reduce energy bills. There’s also an additional benefit of helping the environment.
- Reassessing the Company’s Products and Services
Regularly revisiting the type of services and products provided can help businesses stay competitive. Employers should ask themselves if their customers want their products and if there is a better or cheaper way to provide the same level of service. Keeping an eye on what competitors are doing can also be helpful.
👔 Cost Reduction Strategy: Examples of Companies
Toyota Cost Reduction Strategy
Toyota uses the target costing approach. The company achieves its cost reduction goals through design changes by comparing the costs of new and old designs and estimating potential expenses. This approach helps Toyota reduce costs, increase profitability, and understand price fluctuations.
Boeing Cost Reduction Strategy
Boeing’s Commercial Airplane Group aims to create an efficient design and production system through a cost management strategy. Their initiatives include simplifying production, shortening flow and cycle times, and identifying core products and processes. They use Activity-Based Costing (ABC) to provide information related to business stream customization, material management, costs of activities, and profitability analysis.
Apple Cost Reduction Strategy
Apple uses multiple cost-cutting measures. One prominent example is not including wired EarPods headphones in the box with the iPhone 12. This move didn’t upset most customers as they were likely to already have compatible headphones. Other ways in which Apple has cut costs include removing the headphone jack, getting rid of the plastic box for EarPods, and only including a 5W charger with cheaper phones.
Other companies using great cost reduction strategies include:
We hope our explanation and examples helped you understand cost reduction strategy better! Good luck with your business assignments!