The document discusses cost reduction techniques. It covers topics like the benefits of cost reduction, the 6Ms of cost (machine, manpower, material, methods, money, space), why cost reduction is important at the operational level, and how cost reduction can impact profits. Workshops are proposed to teach tools like Ishikawa diagram and exercises are suggested to maximize utilization and reduce product costs. Feedback is collected at the end to evaluate the workshops.

2.  OPENING SESSION
 ICE BREAKER
 WHY COST REDUCTION
 WHAT’S CR?
 BENEFITS
 OPERATIONAL LEVEL
 6M’s OF COST
 WHY CR AT OPERATIONAL LEVEL?
 WORKSHOP 1 : LEARN A TOOL - ISHIKAWA DIAGRAM
EXERCISE – OPERATIONAL COST OF KSRTC – ANLYSE TO REDUCE
IMPLEMENTING CR
 WHERE TO START?
 HOW TO START?
 FRIENDS OF COST
 FRIENDS OF COST REDUCTION
 DEVIL’S ADVOCATE
 KEY TO SUCCESS
 TOOLS BY DELTAETA
 FAILURE CHANCES
 WORKSHOP 2 : MAXIMISE UTILISATION
EXERCISE – CARVE OUT 500sq.m FROM A STORE OF 1200sq.m
 WORKSHOP 3 : REDUCE PRODUCT COST
EXERCISE – REDUCE CONTENT AND COST OF THE GIVEN FLOOD LGHT
5. COLLECT FEEDBACK FORM
6. CLOSING SESSION

5. YEAR MAKE MODEL PRICE IN
RS.
%
CHANGE
%
CHANGE
YEARLY
REMARKS
2012 LG LCD 35,000
-17.06 -5.69
MODEL
OBSELETE
2015 LG LED 29,900
NEW
MODEL
2014 PANASONIC LED 29,500
-7.27 -3.642016 PANASONIC LED 27,500
PRICE OF 32” TV
Source: QRS, Pattom, Trivandrum

6. PRICE OF 6.2 KG FULLAUTOMATIC WASHING M/C
MAKE MODEL
PRICE (IN RS.) % CHANGE %
CHANGE
YEARLY2014 2016
LG 6.2KG 19,390 16,600 -16.81 -5.60
SAMSUNG 6.2 KG 21,090 18,700 -12.78 -4.26
Source: QRS, Pattom, Trivandrum

7. MAKE MODEL
PRICE (IN RS.)
% CHANGE
% CHANGE
YEARLY
2014 2016
APPLE i PHONE
5(16GB)
45,500 39,129 -16.28 8.14
SAMSUNG GALAXY S3 37,150 29,045 -27.90 13.95
ASUS ZENFONE 6 16,999 14,990 -13.40 6.7
MICROMAX CANCAX
JUICE
8,240 6,530 -26.18 13.09
SOURCE: INTERNET

8. 1.
2.
3.
4.
5.
WHY PRICES DECREASED?

9. 1. COMPETITION
2. PRODUCT OBSOLESCENCE
3. UNSOLD INVENTORY
4. CHANGING ECONOMIC CYCLES
5. MARKET SATURATION
WHY PRICES DECREASES?

10. YEAR DATE PEROL PRICE (RS./LTR)
2016 MAY-10-2016 66.46
2014 AUGUST-01-2014 75.78
2011 AUGUST-01-2011 69.16
2010 AUGUST-01-2010 55.98
PETROL PRICE
source: www.petroldieselprice.com

11. INFLATION RATE

12. ELECTRICITY TARIFF
IN KERALA
SUPPLY VOLTAGE
YEAR
2012 2013 2014
EHT
66 KV 4 4.4 4.9
110 KV 4 4.3 4.8
220 KV 4 4.35 4.7
HT (INDUSTRIAL) 4.1 4.6 5.2
Energy charges
Source: Kerala gazette

13. WHY COST INCREASES ?
1.
2.
3.
4.
5.

14. WHY COST INCREASES
1. DIMINISHING RESOURCES (MAN,MATERIAL,MONEY)
2. INFLATION
3. COMPLEXITY
4. COMPLACENCY
5. DECLINING EFFICIENCY (MACHINE,MAN)

15. IMPACT OF COST ON PROFITSImpact of cost on profits assuming price is constant and cost increases 10% every year
year 1 2 3 4 5 6 7
price 100 100 100 100 100 100 100
cost 75 83 91 100 110 121 133
profit 25 17 9 0 -10 -21 -33
-60
-40
-20
0
20
40
60
80
100
120
140
160
1 2 3 4 5 6 7
price
cost
profit

16. HOW TO KEEP COST BELOW PRICE?
1.
2.
3.
4.
5.

17. WAYS TO KEEP COST BELOW PRICE
ACTION REACTION
INCREASE PRICE OF PRODUCT LEAD TO REDUCE SALES
REDUCE PRODUCT FEATURES AND
SERVICES
LEAD TO CUSTOMER COMPLAINTS
AND DAMAGE TO REPUTATION
IMPLEMENT COST CUTTING IT IS NOT PERMANENT AND
REDUCE LONG TERM CAPABILITY
ELIMINATE INDIRECT COST &
BENEFITS
LOWERS EMPLOYEES MORALE
IMPROVE PRODUCTIVITY DIFFICULT TO IMPLEMENT
REDUCE MAN POWER LOSS OF MORALE
IMPLEMENT COST REDUCTION
PROGRAMMES
NONE OF THE ABOVE

18. A FARMER PRUNING HIS PLANTS..
NATURE SHEDDING LEAVES IN NON FRUIT
YIELDING SEASON
WOOD CUTTER SHARPENING HIS SWORD
MOTHERS REMOVING THE SOOT AND
REPLACING BURNT WICKS IN STOVES
REGULARLY FOR TROUBLE FREE COOKING .
FELLING OF DEAD WOOD
.
COST REDUCTION CAN BE COMPARED TO

19.  CLEANING PIPES IN A HEAT EXCHANGER ,REMOVING SCALESS, ENSURE
AREA FOR SUFFICIENT COOLANT TO FLOW AND ACT .
COST REDUCTION IS ALL OF THE ABOVE .
1. PRUNING - REMOVING - KEEPING ONLY WHAT IS REQUIRED.
2. MAXIMISE UTILISATION
3. KEEPS YOU FIT FOR ACTION AT ALL TIMES

20. Impact of CR on Profis and Break even point ,
Consider unit price 100/ ,FC=45000/annum, VC=0.6 R , sales is 150 units monthly
without Cost reduction
1 2 3 4 5 6 7 8 9 10 11 12
Revenue 15000 30000 45000 60000 75000 90000 105000 120000 135000 150000 165000 180000
Fixed cost 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000 45000
variabe cost 9000 18000 27000 36000 45000 54000 63000 72000 81000 90000 99000 108000
total cost 54000 63000 72000 81000 90000 99000 108000 117000 126000 135000 144000 153000
profit -39000 -33000 -27000 -21000 -15000 -9000 -3000 3000 9000 15000 21000 27000
quantity 150 300 450 600 750 900 1050 1200 1350 1500 1650 1800
BE is at 7.5 months , BEQ is 1125 units ,profit -27,000
-50000
0
50000
100000
150000
200000
1 2 3 4 5 6 7 8 9 10 11 12
Revenue
total cost
profit
IMPACT OF CR ON PROFIT AND
BREAK EVEN

21. COST REDUCTION
Vs
EQUIVALENT REVENUE
1 2 3 4
PROFIT% 1 4 10 15
COSTREDUCTION 100000 75000 150000 100000
EQUIVALENTREVENUE 10000000 1875000 1500000 666667
COSTREDUCTIONVsREVENUEINCREASE

22. WHAT’S COST REDUCTION
SYSTEMATIC AND DISCIPLINED WAY TO
“REDUCE VALUE OF INPUT FOR SAME OUTPUT
OR
INCREASING OUTPUT FOR SAME INPUT”
in other words
CHANGE EFFICIENCY OR DELTAETA,

23. IMPACT OF COST REDUCTION ON
PROFIT
Impact of cost reduction on profits assuming price is constant and cost decreases 7.5% after 5th year
YEAR 1 2 33 4 5 6 7
PRICE 100 100 100 100 100 100 100
COST 75 83 91 100 92.5 85.56 79.15
PROFIT 25 17 9 0 7.5 14.44 20.85
0
20
40
60
80
100
120
1 2 3 4 5 6 7
PRICE
COST
PROFIT

24. BENEFITS OF IMPLEMENTING COST
REDUCTION APART FROM PROFIT
INCREASE
1. SAVING OF RESOURCES
2. COMPOUNDED YEARLY GAINS AS COST IS REDUCED
3. EFFICENCY AND PERFOMANCE IS IMPROVED
4. MAKES THE ORGANISATION LEAN AND MEAN
5. CAN FACE VARYING BUSINESS CYCLES SUCESSFULLY

25. 6M’S OF COST
1. MACHINE
2. MANPOWER
3. MATERIAL
4. METHODS + TIME
5. MONEY
6. MAKHAN(SPACE)

26. OPERATIONAL ACTIVITIES
 ALL ACTIVITIES WHICH WILL CONVERT CUSTOMER P.O. TO INVOICE
IS CALLED OPERATIONS
 PRE-ORDERACTIIVITIES-SALES,MARKETING, TENDERING,PROMOTION
 POST INVOICE, ACTIVITIES – ACCOUNTING, CLAIMS HANDLING,
INSTALLATION, SERVICE, STATUATORY REPORTING, TAXATION, AUDIT
WARRANTY ETC.
 OPERATION : DESIGN/PROTO
PROCUREMENT
PLANNING & SCHEDULING
MAKE PARTS
ASSEMBLE PARTS
PACK &STORE
INVOICE
 OTHERS : ADMIN, IT, HR

27. WHY CR AT OPERATION LEVEL
 ALL THE 6M’S HAVE A ROLE IN OPERATIONS
 MORE THAN 70% OF TOTAL COST IS OPERATIONAL COST
 IS INTERNAL, HENCE EASY TO CONTROL
 BENEFITS ARE LONG TERM
 REDUCES FIXED COST.
 IF UNSUCESSFULL EASY TO REVERT BACK

28. Impact ofCost Reductionat Operationallevel
Before CR
after 10%CR@other
levels
10%CR@Operational
level
Revenue 500000 500000 500000
CostofGoods Sold 400000 400000
Gross Profit 100000 100000
Adminexpenses 20000 20000
Sales andMarkeing expenses 30000 30000
FinanceCost 15000 15000
Depreciation 5000 5000
NettProfit 30000
NettProfit in% 6
IMPACT OF COST REDUCTION ON
BOTTOMLINE