Managing a Cost Reduction Program - Methods Of Reducing Costs

Cost reduction programs can focus on total cost or unit cost, but unit cost is usually the principal objective. The production cost per unit is: [Unit cost = Total cost Production volume] Consequently, any activity that reduces the total cost or increases the production volume will reduce the unit cost. Production volume is increased by (1) maximizing the availability of the production equipment and (2) maximizing equipment performance during periods of operation. Most operations managers routinely focus on volume because the factors influencing volume are generally well understood and congruent with the managers' technical skills. In fact, production volume (as a percentage of maximum achievable capacity) is widely recognized as one of the most significant measures of operational performance.