Cost Reduction Strategies

OPTIMIZATION AND LONG TERM SAVINGS

Optimization

Optimization refers to “finding an alternative with the most cost effective or highest achievable performance under the given constraints, by maximizing desired factors and minimizing undesired ones”

Cost Optimization is imperative to any organization in order for it to grow. It can be contrasted with reducing costs. Cost reduction is the mere process of bringing down the expenses of the company in order to increase the profits. It is the process of looking for unwarranted expenses from a Company to increase the profits without having a negative impact on product quality.

A strategic Cost optimization framework includes the following stages.

1. Establish objectives of cost optimization and

This complexity is often seen as a barrier for companies that want to achieve quick wins in cost saving opportunities. However, organizations don’t have a procurement area devoted to indirect spending. As an outcome in irregular buying patterns, absence of preferred suppliers and an amount of challenges such as an absence of meaningful data, fragmented supply chains, and entrenched local personal relationships with suppliers. Indirect spending is therefore understood as a low value and low risk part to manage, and the potential cost savings are overlooked by

However, if procurement negotiate discounts and cost savings in the part of direct spend, the influence on the profit and loss will be clear. Indirect suppliers aren’t restricted as to which businesses they can supply. Therefore, only on uncommon cases that a company can use its volume buying power to reach a dominant position over an indirect supplier. Additionally, corporations have to look for more revolutionize ways to improve their indirect spend portfolio by consolidating, regulating and outsourcing indirect matters of spend to reduce costs and raise service