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7 Types Of Cost Reduction

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Cost reduction is the process of eliminating waste and improving processes to reduce overhead and/or cost of goods sold. The following are common types of cost reduction.


Doing things automatically with information technology, machines and robots.


Improving the productivity of workers. For example, a decision support tool may allow workers to make better decisions faster.


Improving the efficiency of equipment and processes. For example, replacing a slow computer with a faster model that uses less power.


Focusing on your core competencies and outsourcing things in areas where you aren't particular productive. For example, a small business that manufacturers bicycles may outsource tax preparation to an accounting firm.


Removing waste in processes such as unnecessary transportation, inventory, activities or waiting. For example, a restaurant that makes its own bread doesn't need to overstock bread or drive across town to a bakery to pick up fresh bread each morning.

Quality Control

Identifying quality problems as early as possible to reduce the cost of poor quality. For example, identifying a quality problem on the production line is cheaper than shipping it all the way to the customer and having them complain and ship it back to you.


Improving the reliability of systems, equipment and processes. For example, a system crash can cause a great deal of waste as workers wait for the system to come back up or implement time-consuming workarounds.
Overview: Cost Reduction
The process of eliminating waste and improving processes to reduce cost.
Related Concepts

Business Costs

This is the complete list of articles we have written about business costs.
Applied Cost
Business Equipment
Capacity Cost
Capital Improvement
Carrying Costs
Closing Costs
Cost Of Capital
Cost Of Revenue
Cost Of Living
Direct Cost
Distress Cost
Fixed Costs
Friction Cost
Employee Costs
Holding Costs
Intangible Cost
Marginal Cost
Operating Cost
Operating Expenses
Legacy Costs
Outlay Cost
Lifetime Cost
Overhead Costs
Menu Costs
Relevant Cost
Normal Costs
Sunk Costs
Tangible Cost
Operational Costs
Travel Expenses
Unit Cost
Opportunity Cost
Variable Costs
Prospective Cost
Semi Variable Cost
Step Costs
Switching Costs
Transaction Costs
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