Cost Savings

Company A wants to reduce cost by $1.0M over the next 12 months. Outside of Labor Cost which the organization has a good control on, Material Cost #1(MC1) and Material Cost #2 (MC2) are the two largest controllable costs. It was determined that in order to achieve a $1.0M reduction, MC1 Usage would need to be decreased by 1% and MC2 Usages would need to be reduced by 10%. 80/20 analysis was done in both categories. Teams were presented with this analysis, brainstormed opportunities for improvement, outlined initiatives, assigned responsibility and target dates. Through weekly, monthly, and quarterly reviews, progress was monitored, persons were held accountable for action items, and the plans were reassessed. The net result was a 5% reduce in MC1 Usage, 20% reduction in MC2 Usage, and a net annualized savings exceeding $2.5M within the first year.

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