COST REDUCTION

Cost Reduction

Cost Reduction

Introduction

In today's time; the aim of every business is to reduce cost. With ever changing economic conditions and every increasing economic challenges and distresses for businesses; cost reduction is the ultimate aim of every business. The current serious economic downturns have made businesses to make cost reduction one of its essential objectives. This paper will explain how a car assembler, a supermarket chain and an airline could use the techniques of economies of scope, outsourcing and product or service redesigning to cut their expenses for the purpose of enhancing profitability. The purpose of this paper is to make the readers aware about the significance of cost reduction in order to make the businesses successful.

Discussion

Every business works with a dual aim of maximizing profits and minimizing costs. Cost reduction is a key aim of business during the current serious economic downturn. Modular production techniques in both manufacturing and service industries bring together three well-know cost reduction methods. The cost reduction methods include economies of scope, outsourcing and product or service redesigning (Bragg, 2010 Pp. 62-75). For the purpose of clearly identifying; how the cost reduction methods can be used to cut the expenses and enhance profitability; examples of three different businesses are provided in the paper.

A Car Assembler

A car assembler is somewhat less sensitive to the constantly changing economies. A car is something which is possessed by people who can afford it. As far as the car assembly is concerned; manufacturers of luxurious cars like BMW, Mercedes, Audi and many others are essentially not focused towards cost reduction. They are less focused towards cost reduction because their products cater the class which is not impacted by economic downturns. On the other hand; car assemblers like Suzuki and others who cater majority of the market or masses in general need to be focused towards cost reduction only to make sure that less privileged people continue buying these cars. A car assembler can use the following cost reduction techniques;

Economies of Scope

An economy of scale is a more popular concept in comparison with the concept of economies of scope. Economies of scale refer to lowering the cost of a single product whereas economies of scope tend to lower the average costs of a firm for producing two or more products. Car assemblers can certainly achieve economies of scope and take the advantage of reduced costs. Normally; not everyone enters into the business of car assembling; therefore, it become relatively easier for the well established car assemblers to achieve economies of scope (Moschandreas, 2000 Pp. 50-55).

For car assemblers; economies of scope can work by cost savings from the production process. For instance, advantages of heating from the energy production can be used to develop car accessories or the underlying energy can be used as a facilitation to assemble the car next in line. Assembling more than one car in the same plant can also result in cost reduction. However, economies of scope will only occur if the overall assembling process is ...