This document discusses key concepts related to cost reduction and productivity. It covers various classifications of costs by nature, variability, and controllability. It also discusses important productivity concepts like labor productivity, multi-factor productivity, and ways to measure outputs and inputs. The document provides examples of improving productivity through reducing waste and using tools like poka yoke, kanban, and 5S. It emphasizes the importance of management commitment, process management, and employee involvement for improving productivity.

1. Cost Reduction : Key Concepts

2. Concepts of Cost
• Amount of expenditure (Actual or notional)
incurred on or attributable to a specified
article, product or activity.
• Cost objects : Product, Services, Project

3. Classification of Costs
• By Nature or elements Overheads
• Material Cost : Direct Indirect
• Labour Cost : Direct Indirect
• Other Expenses: Direct Indirect
Overheads :
Production or works :Rent , Power
Administration : Lighting ,Telephone, Office Rent
Selling : Advertisement
Distribution: Warehousing, packing, loading
unloading charges

4. By Variability or behavior
• Fixed costs
• Variable costs
• Semi- Variable costs

5. By Controllability and normality
• Controllable Costs
• Uncontrollable costs
• Normal costs
• Abnormal costs
• Pre determined costs
• Standard costs
• Estimated cost
• Product cost
• Capitalized costs : Initially treated as asset
subsequently as expense

6. Other Concepts
• Opportunity cost
• Shutdown cost
• Out of pocket cost
• Sunk cost
• Discretionary cost
• Engineered cost : By design
• Explicit costs
• Implicit costs

7. Productivity Challenge
Productivity is the ratio of outputs (goods and
services) divided by the inputs (resources such as
labor and capital)
The objective is to improve productivity!
Important Note!
Production is a measure of output
only and not a measure of efficiency.
Productivity deals with efficiency

8. The Economic System
Inputs Processes Outputs
International experience
Labor, In advanced countries Goods
capital, Transforms inputs to outputs and
management at about an annual 2.5% services
increase in productivity per
year. The productivity
increase is the result of a
mix of capital (38% ), labour
(10%), and management
(52%)
Feedback loop

9. Productivity
Units produced
Productivity =
Input used
 Measure of process improvement
 Represents output relative to input
 Only through productivity increases can
our standard of living improve

10. Productivity Calculations
Labor Productivity
Units produced
Productivity =
Labor-hours used
1,000
= = 4 units/labor-hour
250
One resource input  single-factor productivity

11. Multi-Factor Productivity
Output
Productivity =
Labor + Material + Energy +
Capital + Miscellaneous
 Also known as total factor productivity
 Output and inputs are often expressed in Rs
VALUE
Multiple resource inputs  multi-factor productivity

12. Measurement of Out puts
• Value of output
• No. of documents processed
• Time taken to carry out a job
• No of jobs attended
• No. of customers served

13. EXAMPLES OF INPUTs
• Labour force or man hours, man days. Labour cost
(Rs)
• Area of land(in hectares)
• Kg. Of material or material cost in Rs.
• Volume of material or fluid
• Length of material
• square area of space
• Units of power
• Time etc.

14. OTHER THOUGHTS ON
PRODUCTIVITY
• “Productivity is an attitude of mind”
• “Productivity means doing something better
today than yesterday”
• “Productivity means continuous
improvement”

15. IMPROVING PRODUCTIVITY
Benefit/
Cost
• Increase output while input remains same
• Decrease input while output remains same
• Increase input resulting in a very large increase in
output
• Decrease input by a very large amount with a
resultant small reduction in output

16. Seven Sources of Waste
• Over production
• Waiting
• Transport
• Extra processing
• Extra Inventory
• Unnecessary motion
• Defects
• 8th waste is added now: The under utilized
employee creativity

17. Tools
• Poka yoke mistake proofing
• Kanban : Produce to demand
• 5S : Sort, Systematize ,Shine
Standardize, Sustain

18. All these require
• Top management commitment
• Process management
• Customer ( External and Internal) Orientation
• Team work : Commitment and involvement of all
employees, quality circles, suggestion schemes
• Personal Discipline, Improved Morale

19. BEWARE OF 3 M s
• MURI : In-convenience
• MUDA : Waste
• MURA : In consistency

20. Impact of Industrial and systems
engineering
on automobile assembly line

21. Value

22. Early Moving Assembly Line at Ford

23. A Glimpse of a Car Assembly Line

24. Robots at Work in Car Assembly

25. Robots at Work in Car Assembly

26. A Modern Car “Assembly Line”
at Volks Wagon factory