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1 Minute Idea: Cost avoidance is better than cost reduction

According to Arno Hiller [1], an authority in Product Cost Management:

  1. Controlling costs is a challenge for manufacturing companies.
  2. The two strategies for controlling costs are “cost avoidance” and “cost reduction.”
  3. Most companies focus on cost reduction, instead of cost avoidance.
  4. Solely focusing on cost reduction is expensive and drains far more profits over time.
  5. The solution: combine cost reduction with cost avoidance, putting the majority of the focus on avoiding costs before production begins.

 

[1] Arno Hiller, If Your Company Does Product Cost Reductions, It’s Already Too Late. In: Industryweek.com, 16 June, 2013. https://bit.ly/2Hz9Mbt