Difference Between Cost Control and Cost Reduction

Difference Between expense Control and Cost ReductionIntroductionA price decline architectural plan is a type of method which is to better advantageousness of the arranging or by expected to get a good result that hang up to the ass line of the financial statement and exempted from some(prenominal) serious damage to the b sr.ness itself. As this course of study is a lot much about mystify down exist or reducing expenses of the institution, so a good appeal step-down curriculum is both about how to guard the damage of an organization. Furthermore, a follow diminution class is said kitty be alterd the payability of an organization beca lend wholenessself by reducing expenses, profits be increased without reservation differents shifts.On the former(a) hand, if the follow diminution program squirt buoy matched with a sales betterment program and perhaps, fin on the wholey it pull up stakes get the stunt woman profit. A approach decline progra m mustiness be a complete plan that is results-oriented. A structured bell reducing program volition put the company on track to come by means of upper limit profitability and achieve the highest per castingance. Moreover, this program as soundly implies a series of program that retain all of the demand characteristics and select of the harvesting and thus it must be confined to permanent and genuine savings in the be of manufacture, administration, distri exception and selling, brought about by elimination of muffful and inessential elements form the origination of the result and from the proficiencys and practices simple machineried out in connection therewith.What is the different betwixt live go steady and terms reduction? In fact, represent conquer also k nowadaysn as cost attention or cost containment it rats the be of the organization at the given level. Besides, cost control violence on ensuring that the cost does not exceed the standard budget of t he organization. Businesses drop cost control methods to monitor, evaluate, and ultimately enhance the efficiency of specific argonas, such as de stopments, divisions, or product lines, within their trading operations.However, cost reduction is a power exercise or is an exercise which will out all of the effort to saving cost from whatever level they atomic arrive 18. Cost reduction does not have any standard, or anything is accepted as ideal. both(prenominal) element of cost is scrutinized, every operation is screened and every procedure is green goddessvas to hear the modal values and means of reducing costs. Cost reduction post result in saving the product cost, manufacturing cost s, and life daily round cost.There ar dickens different beliefs between cost control and cost reduction. Cost control is achieving the cost fundament as its object lens while cost reduction is directed to explore the possibilities of modify the targets or company profitability. Theref ore, cost control will end the exercise when achieved the organization target or objective. While cost reduction is a persisting routineing and it has no visible end. Furthermore, cost control try to get with the lowest possible cost under lively conditions whereas cost reduction does not recognize any condition as permanent since a change will result in lowering the cost. If the cost control dialect is on past and present, while the cost reduction emphasis is on the present and future. Besides, cost control is a preventive fail whereas cost reduction is a correlative function. It run even when an good cost control strategy exists.The difference between both of it can be summarized as cost control ensuring the costs is in pact with established standards whereas cost reduction is concerned with try to improve the cost by continuous and without unanimity with any of the standard.The main benefits of cost reduction programs are it can enhance profitability and enhance cash f low of the organization. It presents the secern elements and factors to consider in program intent and go foration. Cost reduction program is also can ensure the results will match with the goals or objective and the appraises of the organization. It is a widely-ac fill inledged fact that cost reduction program is champion of the approximately challenging responsibilities or tasks that a company inevitably to undertake, especially when there are so umpteen ways rude to cost-conscious managers. Finally, an incorporate tax reduction program can reduce the toilsome financial burdens that can stable a companys development and can uncaring up precious gravid that can be result to the firms long benefit.Literature Reviews/Case Study/Research FindingsThere are tail fin cases and cost reduction methods in these literature reexamines. The methods including Target cost (TC), Activity-Based be ( alphabet), Just in Time (JIT), green light pick training (ERP), and set Enginee ring (VE).Case study 1 (Target Costing)DefinitionTarget cost also called product cost method in which an attempt at the planning and development phase of a product life steering wheel to attain a specified cost that is decided by management. This tape up is to seek the lower costs by designing a whole step product that reduces costs in the merchandise phase. It can be depict as a carcassatic subprogram of cost management and profit planning.Case studyIn 1993, Toyota uses target costing approach to in the main reduce costs at the design stage. By utilise this approach, Toyota sets goals for cost reduction and then tries to achieve these forward- appearanceing targets through design changes that will accomplish the cost reduction goal. Toyota was comparing the costs of the new design with the white-haired design in order to guarantee a cost reduction after implementation of the new technique. This is the main idea that Toyota uses to achieve their companywide goals. There are several steps in the sequence of price, performance, and cost decisions.First, Toyota decides what the new retail price of the automobile by taking the old price and adding the appraise of any new functions. The sales division comes up with the suggestion for the production volume by taking past meter and indexing them to market trends and the state of competitors.Second, Toyota is focus on cost planning. This cost planning is based on the product plan and targets for retail price and also production volume. The enthrone of using cost planning by Toyota is for place the amount by which costs can be returnd through better design of the new model. Toyota establishes a profit target that is subtracted to determine their target cost. These cost planning decisions are made for iii years before they release the model.Toyota estimates the approximate costs of a new model by sums of the cost variations of the new model and the old model. This technique is very beneficial to Toy ota, because it tends to be little work and provides more faithful results. In addition, it also helps the specific divisions understand the cost fluctuations. Besides that, Toyota removes protean costs both models incur such as wages and indirect costs by using this approach. Meanwhile, they use their decisions on costs that change between the twain models in design and production volume.The main focalize in this case study is to show how cost planning at Toyota is foc employ on the design phase. Toyota does this by setting goals for cost reductions through design changes. Toyota takes these goals and then assesses them to different divisions to hire the necessary changes. Toyota believes that by ever-changing product design to produce lower price to achieve a higher(prenominal) level of profitability.Case Study 2 (Activity-based Costing)DefinitionActivity-Based Costing is a costing model that identifies the cost pools, or activity centers, in an organization and assigns cos ts to products and serve (cost drivers) based on the twist of events or transactions involved in the process of providing a product or servicing. The concept of Activity-Based Costing has been considered a sophisticated method of cost enumeration since the early 1980s.In addition, Activity-Based Costing ( rudiment) assigns manufacturing overhead costs to products in a more logical manner than the traditionalistic approach of simply allocating costs on the basis of machine hours. Activity-Based Costing first assigns costs to the activities that are the real cause of the overhead. It then assigns the cost of those activities only to the products that are very demanding the activities.Case studyBoeing Commercial Airplane Group (BCAG) is the worlds largest manufacturer of mercantile airplanes. It comprises or so 60% of Boeings total revenues. BCAG Wichita is a cost center manufacturing whole caboodle producing fuselages, noses, struts, nacelles, and thrust reversers for 737, 74 7, 757, 767, and 777 airplane models. In May 1999, the plant employed approximately 16,835 employees directly, and was responsible for indirect employment of 53,100 workers within the state of Kansas. As crack up of its overall drive to gain and retain world-class aerospace manufacturing status, BCAG Wichita is focused on developing a lean, efficient design and production system back up by an effective cost management dodging.The cost management strategy supports initiatives designed to link the manufacturing process and support activities so as to modify the whole production process, while maximizing benefits from the use of lean melody practices. Cost management strategy initiatives include simplifying production, shortening flow and cycle magazines, increasing calibre and line turnover, identifying core products and processes, and linking the design and manufacturing process to decrease product time-to-market. Activity-Based Costing links and supports the manufacturing pro cess. It provides information to tailor personal credit line streams and hooey management, costs of activity and processes, time value added versus non-value added depth psychology and profitability analysis used to improve the make versus buy decision-making process. ABC also provides analysis of set-up and run costs, costs of scheduled and unscheduled living, costs of asset failure, and costs of manufacturing capacity, thereby allowing manufacturing managers to manage the assets under their control more effectively. Finally, ABC provides analysis on the costs of design changes in configuration as impacted on the manufacturing floor, costs of incorporating complexity into a configuration design, and the costs of feeling.The highest hurdle in achieving this type of cost management architecture lies in moving the corporal financial section from its classic account statement role as scorer or policeman to the role of business partner. In a business partner role, the corporate f inancial department can support strategical decisions relevant to the companys continued competitive advantage by providing financial selective information that highlights the impact of these decisions. BCAG Wichita views a successful implementation of ABC as one that fulfills three major rolesAddresses the size, complexity, and diversity of the manufacturing process,Facilitates the integration of financial decision makers into a more supportive business partnership role, andImplements effective cost management strategy initiatives.Case Study 3 (Just in Time)DefinitionJust-in-time (JIT) production also crawl inn as lean production, it is a pull system of production, means the actual orders provide a signal for when a product should be manufactured. When there is Demand-pull, it enables a company to produce only what is required, with the aline quantity and correct time. These features of Just-in-time production system accomplish close organization among work- stations. Therefore, its objective can be defined as producing the right part in the right place at the right time (in other(a)(a) words, just in time).Case studyFrom July 1990, top managers of Daioku have begun completing the Kanban production system-moving from the traditional push-type production management to pull-type production management. This type of system produces only quantities necessary to fulfill the demands of the next operation. The quantity is pulled when it is needed, where it is needed, and in the have quantity which is needed.For kinda, since blood the implementation of Just-In-Time, many difficulties have occurred. The difficulties include combine the data and material flows instead of classifying them.Post the products, its store and manufacturing process instead of a flow without any post.Changing from L-shape host line into V-shape assembly line. This requires a set of new equipments and techniques.Problems exist between Daioku and supplier (subcontractors), for instance, traditional ways of shipping material based on the pre-determined plan is now being eliminated and every supplier are now required to accumulate the Kanban back from the order-post and ship their material based on the information in the Kanban.Everyone in the firm required to participate in Just-In-Time. They need to determine how to make the shop floor operations become easier and efficient.Daioku carried out discussions and bringings to unwrap solutions to the problems in the year of 1992. Therefore, Daioku sent their experts to help suppliers to solve their problems gradually. In Daioku, The muniment part was decrease the dramatically in this year.By using Just-In-Time method, the storage levels of raw materials, work in progress, components and finished goods can keep in a minimum. However, this requires a carefully planned scheduling and flow of resources through the production process. Just-in-time method promotes continuous enhances on the products. At the same time, t his method can eliminate waste. Waste results from any activity that adds cost without adding value. For example, the spare moving of materials, the accumulation of excess stocktaking, or the use of faulty production methods that create products requiring subsequent rework. Just-In-Time should enhance the profits and return on enthronisation by reducing descent levels (rising the inventory turnover rate), reducing variability, astir(p) product character reference, reducing production and delivery lead times, and reducing other costs (like those associated with machine apparatus and equipment breakdown). In conclusion, Just-In-Time production system aims to (1) flirt customer demand in a timely manner (2) at the lowest possible total cost and (3) with high-quality products.Case Study 4 (attempt Resource supplying)DefinitionEnterprise Resource Planning (ERP) is a ready reckonerized inventory control and production system that was born from Material Requirements Planning sys tems (MRP). It is a system that organizes functions of an institution. It assists in account, finance, human resources and e-commerce applications through creation of databases and graphical exploiter interfaces. It unifies the tasks of institutions like corporations, government agencies, non-profit organizations, powerful institutions and industries and businesses establishments. There are some businesses beget to compete on a global scale, it is critical to streamline operations and processes in business to reach a higher level of productiveness and efficiency in information exchange and supports e-commerce applications, for example supply range of mountains management (SCM) and customer relationship management (CRM). On the other hand, package that comes up with functionality to various systems that will coincide with one another as a whole is required to combine all of the information or operations of a company into a single unit. Central database is one of the roughly out standing parts of the ERP system.Case StudyBy October 1997, a group of 50 top business executives and 10 senior IT professionals had been congregated to turn of events the SAP project to come up with a set of surpass practices that would become common work procedures for every Nestl division which are manufacturing, get, accounting and sales by adopted new pan-Nestle way.Firstly, in order to implement the technical side, a common structure crosswise the company, the vanilla would be code 1234 in every division. The SAP system customize close to the uniform affair procedure. The group decided that they are not to use SAP in supply chain because the ERP supply chain staff adopted was brand-new and therefore risky. Furthermore, Manugistics supply chain mental faculty followed all the SAP standards and could easily be desegregated.Nestl implement five SAP modules which are purchasing, financials, sales and dispersal, accounts payable and accounts receivable and the Manugistics su pply chain module which deployed across every Nestl division, by March 1998. Besides that, the purchasing company for confections pursues the analogous dress hat practices and information as the purchasing company for beverages.To beat the Y2K deadline, the best project group had overlooked the integration points between the modules. All purchasing departments now used general names and systems, and followed a general process, only their system was not integrated with the financial, planning or sales groups. A salesperson may have given a valuable customer a discount rate and entered it into the new system, however the accounts receivable department wouldnt know about it. Hence, it would appear to the accounts receivable operative as though the invoice were only partially paying as customer paid the discounted rate. The project team had essentially replaced divisional silos with process silos to unify the companys enjoin brands.The time constraints necessitated by Y2K had put to o much pressure on the people in charge of executing the changes. The project team had confused the big picture of how the various components would work together. Hence, the existing modules had to be integrated and the team still needed to roll out another two more SAP modules which are sales and distribution on the internal side, and accounts receivable as well as a new module for the supply chain. Since Dunn had rejected the SAP supply chain module two years before, therefore, it leads to decision to replace all but a straddle of parts of the Manugistics system with APO.The last state of design was completed on April 2001 and giving the project teams a highly detailed road present to follow. One month later, Tom James came on board as director of process change for the Best project with the responsibility as a connection between the divisions and the project team. He was so move by the poor relationship between divisions and project team. They conducted surveys that were inv olved of how the workers affected by the new systems were dealing with the changes and the feedback was the users were not prepared to make process alter.ERP projects are celebrated and need a long period and a lot of money to done it. Dunn maintains the slow and steady wins the race. Nestl United demesne accomplishes the significant ROI with the greatest bulk of savings from better demand forecasting.The old process included a sales man giving a number to the those men and demand planner do not know what the hell they are talking about then the factory changes the number again.With SAP in place, general databases and business processes lead to more fiducial demand forecasts for the various Nestl products. Furthermore, because all of Nestl United State also using the same data then Nestl can forecast down to the distribution center level to diminish the inventory and the redistribution expenses that occur when too much of a product is sent to one place and not plentiful to anot her. The supply chain improvements accounted for a major chunk of the $325 million has relieve from SAP.Case 5 nurture Engineering (VE)DefinitionValue applied science (VE) is a systematic method to improve the value of goods or products and services by using an examination of function. Value, as defined, is the ratio of function to cost. Value can therefore be increased by either improving the function or reducing the cost. It is a primary tenet of value engineer that basic functions be preserved and not be reduced as a consequence of pursuing value improvements. 1Value design is sometimes taught within the project management or industrial engineering body of knowledge as a technique in which the value of a systems outputs is optimized by crafting a mix of performance (function) and costs. In most cases this practice identifies and removes unnecessary expenditures, thereby increasing the value for the manufacturer and/or their customers.Case StudyThis project was for an undergr ound car park below a new shopping centre in Three Waters, Madrid. A fully ducted ventilation system was the approved design contained with the Spanish structure Regulations. However, this would be costly to install and would impact on the development programmed. Therefore, the purpose of the simulation was to demonstrate that a non-ducted, mechanical system would also meet the Spanish Building Regulations. The planning requirements often mean drawn-out car parks to proposed offices, residential and retail developments. The ventilation of these car parks can present a significant cost to the developer in terms of capital expenditure for plant, energy consumption and maintenance, as well as the implications for the programmed if extensive ductwork and plant has to be installed. The use of Computational Fluid dynamics (CFD) is most effectively used at early design stage, also can be used as a tool for solving existing problems. The specific objectives of a project can vary consider ably. The key objectives of the simulations are normally to ensure that the distribution and concentration of carbon monoxide (CO), is in accordance with Building Regulations. The Building Regulations comprise a number of pass Documents. These Approved Documents contain design options which if adopted, the scheme is deemed to comply.Applying Value Engineering can identify potential savings in capital, maintenance and energy costs without any adverse effect on performance. Computer simulation is therefore, becoming an essential value engineering design tool. For example, a designer may principal why 6 air changes per hour (ACH) should be provided when 4 ACH will accomplish the desire result. The benefits of simulation are that the proposed designs can be tried against the acceptance criteria contained within the Building Regulations before any financial load is made.In conclusion, Three Waters usingiof Computational Fluid Dynamics (CFD) as a tool for value engineering can signi ficantly benefit new and existing developments by avoiding unnecessary capital expenditure, reducing construction time, and providing reductions in energy consumption, CO2 emissions and maintenance.Analyses/DiscussionCost reduction programs have classified in many types and each type of the program will provides different benefits to the companies. In this part, we are going to give the analysis of the advantages and benefits the types of cost reduction methods which shown below. Finally, analysis of cost reduction will show in the end of this part.Total Quality Management (TQM)TQM is the one of the famous method that uses the focus of quality of management process. This will increase the productivity and efficiency in the business and in the manufacturing process. If the process is used from the beginning during the manufacturing process, there is less likely of chance for incorrectly producing products or devices. Therefore, it would bring the correct product in the end of process in creating less waste in raw materials and less lost hours due to tell of the process. TQM method is not only will increase the productivity, but it also increases the level of pride in the employees. This is because each employee becomes responsible for a higher level of quality in his or her work.Kaizen Costing (KC)Kaizen costing is the maintenance of present levels for products currently being manufactured via systematic efforts to achieve the desired cost level. In general, it is the process of cost reduction during the manufacturing phase of a product. The word KAI is means modify and change and ZEN means think, make good, and make better. So, in overall, kaizen costing is focuses on continuous and gradual by small betterment activities rather than large or radical improvement made through innovation or large investments in technology.Basically, kaizen costing imply four effects, there are paying attention to the quality and productivity, acquiring little by little kaizen an d problem-solving ability, perceiving the work place as their own, and understanding the meaning of kaizen. Kaizen costing meets the goal with the continual and relentless reduction of non-value-added activities and costs, the elimination of waste, and improvements in manufacturing cycle time all contribute to the effort. In additional, kaizen costing has brings the benefit of reduction in production time, reduction in rejection, energy saving, and improved quality.Value Engineering (VE)/Value Analysis(VA)Value engineering (VE) or value analysis (VA) is a process of systematic review that is applied to existing product designs in order to compare the function of the product required by a customer to meet their requirements at the lowest cost consistent with the specified performance and reliability needed.The key focus of the value engineering is the management of functionality to yield value to the customer. For instance, not that long ago, consumers of electric kettles were offere d a variety different types of metallic element-based boiling device. The value of a kettle is derived through heating water and therefore its functionality can be determined as temperature, capacity, reliability, safety, and else. With the same functionality of the boiling water, designers would probably look towards a kettle which made of ductile. Plastic has the same functionality as metal in terms of containing and boiling water. However the switch from metal to plastic does not impair this value and functionality with the customers. This is because the customers just want to boil water, but it gives result in a cost saving for the manufacturing company.The benefits of effective VE process can be summed up including speed of getting an effective design into the market without problems and through error-free manufacturing and assembly processes, reliability and durability of the product in the market which enhances the reputation of the product and the company, low overall cost which enhances product margin and also releases finances within the business as well as allowing the ability to engage in price competition, enhanced quality and compliance with minimal costs of warranty that allows a company to stigmatise its products based this perceived quality of use and esteem, and finally the value engineering process satisfies the primary goal of any business which is to make a profit and survive.Activity Based Costing (ABC)Activity-Based Costing method is a tool which could bring about significant improvement in the quality of overhead cost allocation. The ABC process is able to incorporate both physical measures and causal principles in the costing system. The basic idea of ABC is to allocate costs to operations through the various activities in place that can be measured by cost drivers. In other words, cost units are assigned to individual activities, such as planning, packing, and quality control using a resource cost driver at an initial stage with the costs of these activities being allocated to specific products or cost objects in a second phase of allocation via an activity cost driver.The advantages are providing insight into the fastest- growing and least visible element of cost-overhead, improving profitability by monitoring total life-cycle cost and performance. It also improves the potence of budgeting by identifying the cost or performance relationship of difference service level. It encourages continuous improvement and total quality control because planning and control are directed at process level. At last, is facilitating elimination of waste by providing visibility of non-value added activities and improving make or buy, estimating, and pricing decisions that are based on product cost that mirrors the manufacturing process. As a result, ABC can support managers to see how to maximize shareholder value and improve corporate performance.Enterprise Resource PlanningERP can be describes to integrate all departments and functions across a company onto a single computer system that can serve all those different departments particular needs.Hence, it is exceedingly important to know how to use effectively Enterprise Resource Planning for a success implementation. In order for Enterprise Resource Planning system to succeed, it must be capable of successfully integrating manufacturing with the other processes of a company. Besides that, Enterprise Resource Planning is not the remediation to all the problems a business will face. A number of advantages and disadvantages exists to this technology, and those who know this will be the most likely to succeed.By the implementation of Enterprise Resource Planning, it comes up with a number of advantages that helps to solve a number of problems that have plagued large organizations in the past and used to integrate the many processes of a company or organization. Scalability is also an advantage, like Enterprise Resource Planning also helps to improve the p roduction levels and to control costs more efficiently, and this enabled us to control the whole enterprise more efficiently.As a result, Enterprise Resource Planning is no longer just a competitive advantage in this globalized world. It is very important requirement for every enterprise. To truly be effective, it may be necessary to combine the benefits of Enterprise Resource Planning with those of Customer Relationship Management (CRM).Just in Time (JIT)Just in Time is a set of techniques to improve the return of investment of a business by reducing in-process inventory and its associated costs. In addition, the process is driven by a series of signals, or Kanban that tell production processes to make the next part. Just In time causes dramatic improvements in a manufacturing organizations return on investment, quality, and efficiency.For an example, Toyota press Thailand had implement Just In time methods during the crisis on July 1, 1997. Toyota drive showed a strong commitme nt to uniting with whole workforce as well as suppliers and dealers to ride out the crisis. This commitment was shared with the labor union, and the entire company together with the Toyota Group implemented through measures to make operations more leaner, utilizing the resulting excess labor to implement improvement initiatives as well as additional education of employees and suppliers. Based on the concept of just in time, energy was supplied to each process when it was needed and in just the right amount personal wastebaskets were reduced to one draw and quarter of their original size to encourage less paper usage and reparation was promoted by expanding local procurement to Tier 2 and Tier suppliers. Meanwhile, Toyota Motor Thailand also directed energy into the education and training employees. As a result of these efforts, without having dismissed a single full-time employee, inventories were cleared in January 1998 and production began to rise again. In 2004, Toyota Motor Th ailand produced 273980 vehicles. Toyota Motor Thailand paved the way for the strides forward it is making today.There are several examples of advantages of JIT. Both inventory and the cost of holding it go down as the inventory-reorder quantity and the level best inventory level drop. However, because inventory requires incurring an ordering or setup orders that mu