Waste Elimination
Identifying and eliminating waste such as materials that go wasted in a production process.Modernization
Modernization of equipment. For example, old computing hardware may be energy inefficient and slow as compared to new models.Dematerialization
Finding ways to use less physical resources. The classic example is an office that goes paperless.Efficiency
The output you get for a unit of input. For example, improving the energy efficiency of a data center.Productivity
The output you get for an hour worked. Typically improved with automation and tools. For example, farming robots may improve the productivity of a farm as work is shifted from physical tasks towards knowledge work.Sourcing
Outsourcing things in areas where you're not particularly efficient. For example, a small business that decides to outsource its financial accounting and tax preparation tasks.Consolidation
Consolidating things to make them easier to manage or to gain negotiating power. For example, a manufacturer consolidates its suppliers and demands steep discounts for the greater volume of orders.Negotiation
Renegotiating costs. For example, a retail outlet that renegotiates rent during an industry downturn.Overhead
Looking at processes, procedures, capabilities and structures that aren't adding much value and restructuring them.Perks
Reducing perks such as business class air travel and stays at luxury hotels.Scale
Looking at the scale or volume of your business. For example, unit costs may fall until an existing factory reaches its capacity. In this case, increasing sales through marketing efforts may result in declining cost per unit.Improvement
Measuring things and improving them continuously. For example, measuring processes to detect expensive bottlenecks and exceptions and finding ways to remove them.Quality
Cutting back on quality. This can easily backfire as it may result in lower sales volume and revenue. In some cases, improving quality can result in long term cost reduction in areas such as marketing costs. For example, a hotel with high ratings may be fully booked without need to advertise.Services
Cutting back on service levels such as a restaurant that cuts back its business hours. This can also backfire. For example, customers may avoid a business that they perceive as often closed.Cut and Run
Retiring business units, products, capabilities and processes that aren't working out. For example, an Australian bank expands to Asia but finds that it is a money losing venture year after year. The decision is made to cut and run.Proximity
Reducing transportation costs by putting things closer together. For example, an ecommerce company that moves from 12 regional distribution centers to 1200 distribution partners closer to the customer.Partnerships
Finding partners who can reduce your costs. For example, a cloud platform that eliminates the need to own and operate your own computing infrastructure.Design
Designing processes, services, products and practices to be more efficient and productive. This can include subtle improvements or innovation that changes your entire cost base.Organizational Culture
Asking your people for ideas for cutting cost and engaging them in the effort. This requires setting a tone at the top of financial discipline. For example, a CEO who regularly travels by economy may encourage others in the organization to spend responsibility.| Overview: Cost Reduction Examples | ||
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