Cost Reduction Analysis E-Book

Steven M. Bragg

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Corporate F&A
• Sprache: Englisch

Seitenzahl: 501

Veröffentlichungsjahr: 2010

Beschreibung

Discover the tools for knowing the costs your company should cut, without impacting its ability to deliver goods and services New from Steve Bragg, this book provides the tools for determining which costs a company should cut, without impacting its ability to deliver goods and services. It explains how to use throughput analysis in order to locate bottleneck operations in a company, which in turn dictates where capital investments should (and should not) be made. * Delves into process analysis, to determine where excess resources are being used in a business process * Describes the total cost of ownership, showing how a single purchasing decision actually snowballs into a variety of ancillary costs * Shows how to create and use a spend management system to reduce procurement costs * Shows how just-in-time systems can be used to eliminate inventory costs Cost Reduction Analysis: Tools and Strategies provides examples to show how much cost can potentially be eliminated to avoid drastic action later that can imperil your corporation's direction and future.

Leseprobe

Table of Contents

Title Page

Copyright Page

About the Author

Preface

PART I - Primary Areas of Cost Reduction

CHAPTER 1 - The Cost Reduction Process

Introduction

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

Metrics

Summary

CHAPTER 2 - Selling and Marketing Cost Reduction

Introduction

Customer Mix Analysis

Customer Class Analysis

Sales Region Analysis

Dropped Customer Analysis

Price Setting with Throughput Analysis

Sales Productivity Analysis

Sales Effectiveness Analysis

Salesperson Analysis

Finding Throughput Problems in Sales

Sales Process Flow

Sales Deduction Systems

Collections by the Sales Staff

Marketing Cost Reductions

Sales and Marketing Metrics

Summary

CHAPTER 3 - Product Analysis

Introduction

Target Costing

Targeted Price Increases

Eliminate Unprofitable Products

Add New Products

Outsource Products

Product Rework Costs

Custom Product Costs

Product Metrics

Summary

CHAPTER 4 - Production Cost Reduction

Introduction

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

Metrics

Summary

CHAPTER 5 - Payroll Cost Reduction

Introduction

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 Metrics

Summary

CHAPTER 6 - Benefits Cost Reduction

Introduction

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

Metrics

Summary

PART II - Procurement Cost Reduction

CHAPTER 7 - Procurement Cost Reduction

Introduction

Standard Procurement Process Flow

Procurement Cards

Evaluated Receipts System

Additional Procurement Process Flow Changes

Supplier Consolidation

Supplier Relations

Additional Cost Reduction Considerations

Metrics

Summary

CHAPTER 8 - Spend Analysis

Introduction

Spend Database

Spend Analysis

Spend Analysis Reports

Spend Analysis Rollout

Third-Party Spend Management Systems

Low-Cost Spend Management Systems

Metrics

Summary

CHAPTER 9 - Maintenance, Repair, and Operations Analysis

Introduction

Problems with MRO Cost Reduction

MRO Cost Reduction Methodology

Distributor’s Viewpoint

Metrics

Summary

PART III - Asset Reduction

CHAPTER 10 - Inventory Analysis

Introduction

Inventory Purchasing

Inventory Receiving

Inventory Storage

Bill of Materials

Obsolete Inventory

Miscellaneous Topics

Metrics

Summary

CHAPTER 11 - Fixed Asset Analysis

Introduction

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 Metrics

Summary

PART IV - Special Topics

CHAPTER 12 - Throughput Analysis

Introduction

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

Metrics

Summary

CHAPTER 13 - Cost Reduction in Mergers and Acquisitions

Introduction

Integration Timing

Integration Planning

Synergy Realization

Integration Manager

Integration Team

Integration Communications—Internal

Integration Communications—External

Employee Integration—Qualification Assessment

Employee Integration—Job Positioning

Employee Integration—Relocations

Employee Integration—Key Employees

Layoffs

Compensation Integration

Sales Integration

Process Integration

Technology Integration

Metrics

Integration Pacing

Summary

Index

Copyright © 2010 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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Library of Congress Cataloging-in-Publication Data:

Bragg, Steven M.

Cost reduction analysis : tools and strategies / Steven M. Bragg.

p. cm.

Includes index.

eISBN : 978-0-470-62247-6

1. Cost control. 2. Cost accounting. I. Title.

HD47.3.B73 2010

658.15’52—dc22

2009047255

About the Author

Steven M. Bragg, CPA, has been the chief financial officer or controller of four companies, as well as a consulting manager at Ernst & Young and auditor at Deloitte & Touche. He received a master’s degree in finance from Bentley College, an MBA from Babson College, and a bachelor’s degree in economics from the University of Maine. He has been the two-time president of the Colorado Mountain Club and is an avid alpine skier, mountain biker, and certified master diver. Mr. Bragg resides in Centennial, Colorado. He has written the following books:

Accounting and Finance for Your Small BusinessAccounting Best PracticesAccounting Control Best PracticesAccounting Policies and Procedures ManualAdvanced Accounting SystemsBilling and Collections Best PracticesBusiness Ratios and FormulasThe Controller’s FunctionController’s Guide to CostingController’s Guide to Planning and Controlling OperationsController’s Guide: Roles and Responsibilities for the New ControllerControllershipCost AccountingCost Reduction AnalysisEssentials of PayrollFast CloseFinancial AnalysisGAAP GuideGAAP Policies and Procedures ManualGAAS GuideInventory AccountingInventory Best PracticesInvestor RelationsJust-in-Time AccountingManagement Accounting Best PracticesManaging Explosive Corporate GrowthMergers and AcquisitionsThe New CFO Financial Leadership ManualOutsourcingPayroll AccountingPayroll Best PracticesRevenue RecognitionRun the RockiesRunning a Public CompanySales and Operations for Your Small BusinessThroughput AccountingTreasury ManagementThe Ultimate Accountants’ Reference

Free Online Resources by Steven Bragg

The author issues a free accounting best practices podcast. You can sign up for it at www.accountingtools.com or access it through iTunes.

Preface

A central concern of any company is how to reduce its costs, since any cost reduction flows straight into profits. However, cost reduction must be accomplished without impacting customer loyalty or reducing the ability of the organization to achieve its long-term goals. Thus, the real issue is how to carefully pare away unnecessary costs while maintaining a robust organization. Cost Reduction Analysis shows how to do this. It describes a variety of cost reduction tools and the issues associated with using them, and then goes on to describe various forms of cost reduction in key expense areas, such as sales and marketing, production, payroll, and benefits.

The book is divided into four sections. In Part I, we address the primary areas of cost reduction. This begins with a discussion of the need for cost reduction, a multitude of cost reduction tools, and process analysis. It continues with specific cost reduction opportunities in the areas of sales and marketing, product design, production, payroll, and benefits.

In Part II, we cover the major cost reduction area of procurement. Coverage begins with a number of methods for improving the procurement process to reduce operational costs and then continues with discussions of spend management and the more specialized area of maintenance, repair, and operations spending.

Part III addresses asset reduction, which indirectly impacts cost reduction. The first chapter describes a broad array of techniques for reducing a company’s investment in inventory while the next chapter delves into the best forms of analysis to follow when deciding whether to invest in a fixed asset.

Finally, Part IV describes two special topics that are extremely important in the realm of cost reduction. The first topic is throughput analysis, where a company centers its activities on its use of the bottleneck operation that drives its overall level of profitability. All cost reduction decisions should be based on how they impact the productivity of this bottleneck. The second topic is how to reduce costs in an acquired company by maximizing and successfully implementing cost-related synergies.

These chapters are liberally sprinkled with examples to clarify concepts and also include a variety of metrics that are specifically designed to monitor cost reduction progress.

The book answers a multitude of questions involving cost reduction, such as:

• How do I calculate the productivity of a salesperson?

• How do I design a product to minimize its cost?

• When should I eliminate a product?

• Can cellular manufacturing reduce my production costs?

• How do I decide whom to lay off?

• How do I avoid institutionalized pay increases?

• What alternatives do I have for maximizing the cost effectiveness of my benefits package?

• How does an evaluated receipts system streamline my process flow?

• How do I use a spend database to reduce costs?

• How do I restructure my capital spending process so that I buy only the fixed assets that I really need?

• How can I manage my bottleneck operation to maximize my profitability?

In short, Cost Reduction Analysis is the ideal sourcebook for how to maximize profits using a successful system of cost reduction.

October 2009 Centennial, Colorado

PART I

Primary Areas of Cost Reduction

CHAPTER 1

The Cost Reduction Process

Introduction

The reason for having an active cost reduction program is quite simple. A company can work extremely hard to obtain one extra incremental dollar of revenue, which will yield a net profit of perhaps 5 percent. Gaining that extra revenue dollar will be uncertain, and it may be difficult to attain the targeted profit. Alternatively, and using the same profit percentage, a cost reduction of one dollar would have required 20 dollars of revenue to generate. Further, a cost reduction is entirely within the control of a company, whereas a revenue increase is not.

The next table shows the equivalent sales that would be needed at various profit margins in order to equal one dollar of cost savings:

Net ProfitEquivalent Revenue1%$1002%505%2010%1015%720%525%4

Thus, even a spectacularly profitable company having 25 percent profitability would have the choice of either creating four dollars of revenue or reducing costs by one dollar.

Also, assume that a cost reduction is not a one-time event but rather is a continuing cost reduction that otherwise would have been incurred in every future year. By eliminating this type of cost on an ongoing basis, a company can achieve compounded gains that keep piling up in the future.

Given the obvious economics of cost reduction, why do companies not practice it more often? They typically ignore it until they get into financial difficulties and then impose a sudden across-the-board cost reduction. The better approach is a long-term, ongoing analysis of every part of a company, with an emphasis on maintaining full funding of the overall strategic direction and a careful paring of other costs with surgical precision. This chapter describes the advantages, disadvantages, tools, and process flow of a successful cost reduction program.