Cost Reduction Analysis – Tools and Strategies : [PDF Download]

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“There are only a small number of really large cost reduction concepts, but there are a potentially infi nite number of smaller cost reduction possibilities. The best way to obtain these smaller cost reductions is to create an employee idea collection system where a company actively solicits ideas from its employees.

It is not unheard of for a company to solicit several dozen ideas per year from every employee and to implement most of the suggestions. Installing hundreds or thousands of cost reduction ideas is also a significant way to build up a competitive position in an industry because small ideas are much less visible to competitors, so they are much less likely to be copied.

An employee idea system does not necessarily even require a reward system for suggestions. A reward system can require a considerable amount of time to calculate the savings from an idea, which in turn requires a small bureaucracy to hand out rewards.

Further, employees will tend to focus on suggesting large-payback ideas only, so a reward system also tends to reduce the number of small-payoff ideas. A better approach is to include ideas generated in each employee’s annual review, which can then focus on the quality of ideas generated.”

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