Cost Management Consulting <ul><li>Increasing Profitability Through Effective Cost Structure Reduction </li></ul><ul><li>C...
Current Economic Conditions $ Time Where is your business? Revenue Cost Profit Loss
Critical questions regarding your cost <ul><li>Do you know what your cost is? </li></ul><ul><li>Is your cost competitive? ...
Do you know exactly what your cost is? <ul><li>Is the cost that you are assuming in customer quotes the actual cost? </li>...
Is your cost competitive? <ul><li>Do you do any competitive benchmarking or spend analysis? </li></ul><ul><ul><li>What are...
Do you have a process to systematically reduce your cost? <ul><li>Revenue – Profit Requirement = Target Cost </li></ul><ul...
Goal is to avert profit loss starting today! $ Time Revenue Cost Profit Today
Next Steps <ul><li>Evaluate your quotation process and assumptions </li></ul><ul><li>Evaluate your cost (manufacturing pro...
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Cost Management Consulting

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Cost Management Consulting

  1. 1. Cost Management Consulting <ul><li>Increasing Profitability Through Effective Cost Structure Reduction </li></ul><ul><li>Chris Domanski </li></ul><ul><li>Owner & Lead Consultant </li></ul>
  2. 2. Current Economic Conditions $ Time Where is your business? Revenue Cost Profit Loss
  3. 3. Critical questions regarding your cost <ul><li>Do you know what your cost is? </li></ul><ul><li>Is your cost competitive? </li></ul><ul><li>Do you have a process to systematically reduce your cost? </li></ul>
  4. 4. Do you know exactly what your cost is? <ul><li>Is the cost that you are assuming in customer quotes the actual cost? </li></ul><ul><ul><li>What are your raw material cost assumptions? </li></ul></ul><ul><ul><li>What are your purchased component cost assumptions? </li></ul></ul><ul><ul><li>What are your capital amortization assumptions? </li></ul></ul><ul><ul><li>What are your direct and indirect labor rate assumptions? </li></ul></ul><ul><ul><li>What are your overhead rate assumptions? </li></ul></ul><ul><ul><li>What are your profit and IRR assumptions? </li></ul></ul>Activity-based costing (ABC) is an accounting method that allows businesses to gather data about their operating costs. Costs are assigned to specific activities—such as planning, engineering, or manufacturing— and then the activities are associated with different products or services.
  5. 5. Is your cost competitive? <ul><li>Do you do any competitive benchmarking or spend analysis? </li></ul><ul><ul><li>What are your competitors’ designs? </li></ul></ul><ul><ul><li>What are your competitors’ manufacturing processes? </li></ul></ul><ul><ul><li>What are your competitors’ overhead structures? </li></ul></ul><ul><ul><li>What are your competitors’ profit and IRR requirements? </li></ul></ul><ul><ul><li>Do the prices of your purchased components make sense relative to each other? </li></ul></ul><ul><ul><li>Do the prices of your purchased components make sense relative to your cost estimates? </li></ul></ul>Cost Engineering - a branch of industrial engineering concerned with cost estimation, cost control, business planning and management, profitability analysis, and project management, planning, and scheduling.
  6. 6. Do you have a process to systematically reduce your cost? <ul><li>Revenue – Profit Requirement = Target Cost </li></ul><ul><ul><li>Do you design to target? </li></ul></ul><ul><ul><li>Do you have purchasing to target strategy? </li></ul></ul><ul><ul><li>Do you have manufacturing to target strategy? </li></ul></ul><ul><ul><li>Do you have overhead structure strategy? </li></ul></ul>Target Cost - the maximum amount of cost that can be incurred on a product and with it the firm can still earn the required profit margin from that product at a particular selling price. Kaizen Cost - The process of continual cost reduction that occurs after a product design has been completed and is now in production. Cost reduction techniques can include working with suppliers to reduce the costs in their processes, implementing less costly re-designs of the product, or reducing waste costs.
  7. 7. Goal is to avert profit loss starting today! $ Time Revenue Cost Profit Today
  8. 8. Next Steps <ul><li>Evaluate your quotation process and assumptions </li></ul><ul><li>Evaluate your cost (manufacturing processes, purchased components, etc.) </li></ul><ul><li>Evaluate your cost reduction process </li></ul><ul><li>Provide proposal for the fix </li></ul><ul><li>Implement the fix </li></ul><ul><li>Maintain the fix </li></ul>

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