Cost Reduction Analysis Tools and Strategies STEVEN M. BRAGG John Wiley & Sons, Inc.
About the Author Preface XI xiii PARTI CHAPTER 1 CHAPTER 2 PRIMARY AREAS OF COST REDUCTION The Cost Reduction Process Need for Cost Reduction Advantages of Cost Reduction Disadvantages of Cost Reduction Cost Reduction Politics Cost Reduction Priorities Cost Reduction Tools Process Analysis Process Analysis Tools Key Cost Reduction Questions Cost Reduction Reports Selling and Marketing Cost Reduction Customer Mix Analysis Customer Class Analysis Sales Region Analysis Dropped Customer Analysis Price Setting with Throughput Analysis Sales Productivity Analysis Sales Effectiveness Analysis 9 11 21 24 28 29 34 34 37 37 37 39 39 42 44 46 48
VI Contents CHAPTER 3 CHAPTER 4 Salesperson Analysis Finding Throughput Problems in Sales Sales Process Flow Sales Deduction Systems Collections by the Sales Staff Marketing Cost Reductions Sales and Marketing Product Analysis Target Costing Targeted Price Increases Eliminate Unprofitable Products Add New Products Outsource Products Product Rework Costs Custom Product Costs Product Production Cost Reduction Throughput Analysis Product Line Complexity Production Flow Cellular Manufacturing Continuous Flow Monument Equipment Quick Changeovers Assembly Line Configuration Assembly Line Length Container Sizes Source Inspection Control Chart Analysis Mistake Proofing Expediting Maintenance Planning Machinery Standardization Machinery Assignment 49 51 53 55 56 56 59 60 61 61 61 72 73 81 83 85 86 88 90 91 91 91 92 92 93 94 94 95 96 96 97 97 98 101 102 102 103 103 103 104
VII CHAPTERS Payroll Cost Reduction Analysis for a Workforce Reduction Cost of a Workforce Reduction Alternatives to a Workforce Reduction Manage Payroll Expenses at the Hiring Stage Combat Institutionalized Pay Increases Restructure Commissions Restructure the Workforce Hire Contractors Other Types of Payroll Cost Reduction Worker Adjustment and Retraining Notification Act Payroll Cost 107 107 107 117 120 123 125 128 129 131 132 133 133 134 CHAPTER 6 Benefits Cost Reduction Benefits Administration Disability Insurance Life Insurance Medical Insurance Pensions Seasonal Bonuses Sick Time «Snacks Training. Vacation Time Wellness Programs Workers' Compensation Insurance Miscellaneous Perquisites Free Benefits 137 137 137 139 140 140 144 147 147 148 148 150 151 151 153 153 154 154 PART II CHAPTER 7 PROCUREMENT COST REDUCTION Procurement Cost Reduction Standard Procurement Process Flow 157 159 159 160
VIII Contents Procurement Cards. l6l Evaluated Receipts System 164 Additional Procurement Process Flow Changes 168 Supplier Consolidation 171 Supplier Relations 174 Additional Cost Reduction Considerations 177 179 180 CHAPTER 8 Spend Analysis 181 181 Spend Database 181 Spend Analysis 184 Spend Analysis Reports 190 Spend Analysis Rollout 193 Third-Party Spend Management Systems 194 Low-Cost Spend Management Systems 195 196 197 CHAPTER 9 Maintenance, Repair, and Operations Analysis 199 199 Problems with MRO Cost Reduction 199 MRO Cost Reduction Methodology 200 Distributor's Viewpoint 208 209 209 PART III CHAPTER 10 ASSET REDUCTION Inventory Analysis Inventory Purchasing Inventory Receiving Inventory Storage Bill of Materials Obsolete Inventory Miscellaneous Topics 211 213 213 213 217 217 221 222 225 227 228
IX CHAPTER 11 Fixed Asset Analysis Fixed Asset Acquisition Analysis Fixed Asset Installation Reporting Postinstallation Audit Outsourcing Alternative Lease versus Buy Decision Feature Reduction Analysis Asset Commoditization Monument Analysis Facility-Specific Considerations Fixed Asset Retention Analysis Fixed Asset Maintenance Analysis Fixed Asset Location Tracking Fixed Asset Condition Tracking Fixed Asset 229 229 229 235 237 237 238 239 241 241 242 243 243 244 245 245 247 PART IV SPECIAL TOPICS 249 CHAPTER 12 Throughput Analysis Theory of Constraints Operational Aspects of the Theory of Constraints Nature of the Constraint Definitions for the Financial Aspects of the Theory of Constraints Financial Aspects of the Theory of Constraints Opportunity Cost of Operations Locating the Constraint Management of the Constrained Resource Types of Policy Constraints Constraint Buffer Production Scheduling Batch Sizes Capacity Reduction Analysis Work Center Utilization 251 251 251 252 254 256 257 259 260 264 268 270 273 278 279 280 280 282
CHAPTER 13 Cost Reduction in Mergers and Acquisitions 283 283 Integration Timing 283 Integration Planning 284 Synergy Realization 286 Integration Manager 290 Integration Team 291 Integration Communications Internal 292 Integration Communications External 293 Employee Integration Qualification Assessment 294 Employee Integration Job Positioning 296 Employee Integration Relocations 297 Employee Integration Key Employees 297 Layoffs 300 Compensation Integration 301 Sales Integration 302 Process Integration 303 Technology Integration 304 305 Integration Pacing 306 307 Index 309