Organisation for Cost Reduction

Cost reduction as stated above involves real and permanent reduction in costs. It is a continuous process. Hence, it requires co-operation of people at all levels. The environment in the organisation should be made so congenial that healthy discussion can take place at all levels of management. The criticisms should be accepted in right spirit with honesty and grace by all, so that corrective action may be taken in time. This requires the formation of a separate Cost Reduction Cell within the organisation. The Cell functions under the supervision and direction of a high-powered authority known as Cost Reduction Committee. The committee consists of responsible executives from various functions such as purchase, planning and design, production, sales distribution, finance, research, etc. The committee should chalk out a proper cost reduction programme and fix up responsibility of the executives to review the actual performance from time to time.

The functions of cost cell can be enumerated as follows:

(i) It collects cost data from different departments.

(ii) It invites suggestions from different executives for improvement and reduction of costs relating to their areas.

(iii) It creates cost reduction environment in the organisation by emphasizing and explaining

(iv) It invites employees to participate in framing the schemes for controlling the costs at the point of their incurrence.

(v) It identifies areas where cost reduction is (a) necessary; (b) desirable; and (c) possible and fixes the priorities.

(vi) It frames policies, guidelines and issues directives for bringing changes in product designs, introducing new products and new designs in consultation with technocrats for reducing the cost of production without impairing the quality.

(vii) It frames policies regarding reduction of costs in administrative and distribution divisions without adversely affecting their efficiency.

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