Why Cost Reduction Programs Fail
⦁ Root causes of costs not well understood
⦁ The belief that cost reduction is painful and must be done quickly
⦁ Tendency to rely on quick fixes
⦁ Tendency to copy the latest trend (outsourcing, off-shoring, etc.)
⦁ Failure to engage people at all levels
⦁ Use of strategies that either shift or temporarily reduce while inhibiting future reductions
Key Questions to Consider
1.What is the problem?
2.What is the effect on PCQDSM?
3.What is the root cause of the problem?
4.What are some possible solutions?
5.How can the solutions be tested to ensure success?
6.Who will be involved/impacted?
7.How can success be measured? How can we be sure that costs will be reduced and not transferred?
8.How will the solutions be implemented and sustained?
Then,how to make cost reduction program a success?
Cost reduction triggers should be set along three dimensions:
Internally-driven: Keep improving your process. Have a good employee suggestions program that works, that is, all suggestions are carefully evaluated and those that are implementable are actually implemented, and if they work out well, the employee is suitably rewarded.
Externally-driven: Stay on top of changes in technology and process. Even when a technology is not directly targeted at your application/process, you need to evaluate it to see if you can use it for cost reduction.
Competitor-driven: Benchmarking against your competitors is key here. You must have real time data on your competitors’ cost position. If you find that your competitor is doing better than you, immediate action is needed.
