Cost Reduction Analysis

STEVEN M. BRAGG, CPA, has been the chief financial officer or controller of four companies, as well as a consulting manager at Ernst & Young and an auditor at Deloitte & Touche. He received a master's degree in finance from Bentley College, an MBA from Babson College, and a bachelor's degree in economics from the University of Maine. He has been the two-time president of the Colorado Mountain Club, is an avid alpine skier and mountain biker, and is a certified master diver. Mr. Bragg resides in Centennial, Colorado. He is also the author of Accounting Best Practices and Accounting Policies and Procedures Manual, both published by Wiley.

• About the Author xiPreface xiiiPart I Primary Areas of Cost Reduction 1Chapter 1 The Cost Reduction Process 3Introduction 3Need for Cost Reduction 4Advantages of Cost Reduction 7Disadvantages of Cost Reduction 8Cost Reduction Politics 8Cost Reduction Priorities 9Cost Reduction Tools 11Process Analysis 21Process Analysis Tools 24Key Cost Reduction Questions 28Cost Reduction Reports 29Metrics 34Summary 34Chapter 2 Selling and Marketing Cost Reduction 37Introduction 37Customer Mix Analysis 37Customer Class Analysis 39Sales Region Analysis 39Dropped Customer Analysis 42Price Setting with Throughput Analysis 44Sales Productivity Analysis 46Sales Effectiveness Analysis 48Salesperson Analysis 49Finding Throughput Problems in Sales 51Sales Process Flow 53Sales Deduction Systems 55Collections by the Sales Staff 56Marketing Cost Reductions 56Sales and Marketing Metrics 59Summary 60Chapter 3 Product Analysis 61Introduction 61Target Costing 61Targeted Price Increases 72Eliminate Unprofitable Products 73Add New Products 81Outsource Products 83Product Rework Costs 85Custom Product Costs 86Product Metrics 88Summary 90Chapter 4 Production Cost Reduction 91Introduction 91Throughput Analysis 91Product Line Complexity 92Production Flow 92Cellular Manufacturing 93Continuous Flow 94Monument Equipment 94Quick Changeovers 95Assembly Line Configuration 96Assembly Line Length 96Container Sizes 97Source Inspection 97Control Chart Analysis 98Mistake Proofing 101Expediting 102Maintenance Planning 102Machinery Standardization 103Machinery Assignment 103Metrics 103Summary 104Chapter 5 Payroll Cost Reduction 107Introduction 107Analysis for a Workforce Reduction 107Cost of a Workforce Reduction 117Alternatives to a Workforce Reduction 120Manage Payroll Expenses at the Hiring Stage 123Combat Institutionalized Pay Increases 125Restructure Commissions 128Restructure the Workforce 129Hire Contractors 131Other Types of Payroll Cost Reduction 132Worker Adjustment and Retraining Notification Act 133Payroll Cost Metrics 133Summary 134Chapter 6 Benefits Cost Reduction 137Introduction 137Benefits Administration 137Disability Insurance 139Life Insurance 140Medical Insurance 140Pensions 144Seasonal Bonuses 147Sick Time 147Snacks 148Training 148Vacation Time 150Wellness Programs 151Workers’ Compensation Insurance 151Miscellaneous Perquisites 153Free Benefits 153Metrics 154Summary 154Part II Procurement Cost Reduction 157Chapter 7 Procurement Cost Reduction 159Introduction 159Standard Procurement Process Flow 160Procurement Cards 161Evaluated Receipts System 164Additional Procurement Process Flow Changes 168Supplier Consolidation 171Supplier Relations 174Additional Cost Reduction Considerations 177Metrics 179Summary 180Chapter 8 Spend Analysis 181Introduction 181Spend Database 181Spend Analysis 184Spend Analysis Reports 190Spend Analysis Rollout 193Third-Party Spend Management Systems 194Low-Cost Spend Management Systems 195Metrics 196Summary 197Chapter 9 Maintenance, Repair, and Operations Analysis 199Introduction 199Problems with MRO Cost Reduction 199MRO Cost Reduction Methodology 200Distributor’s Viewpoint 208Metrics 209Summary 209Part III Asset Reduction 211Chapter 10 Inventory Analysis 213Introduction 213Inventory Purchasing 213Inventory Receiving 217Inventory Storage 217Bill of Materials 221Obsolete Inventory 222Miscellaneous Topics 225Metrics 227Summary 228Chapter 11 Fixed Asset Analysis 229Introduction 229Fixed Asset Acquisition Analysis 229Fixed Asset Installation Reporting 235Postinstallation Audit 237Outsourcing Alternative 237Lease versus Buy Decision 238Feature Reduction Analysis 239Asset Commoditization 241Monument Analysis 241Facility-Specific Considerations 242Fixed Asset Retention Analysis 243Fixed Asset Maintenance Analysis 243Fixed Asset Location Tracking 244Fixed Asset Condition Tracking 245Fixed Asset Metrics 245Summary 247Part IV Special Topics 249Chapter 12 Throughput Analysis 251Introduction 251Theory of Constraints 251Operational Aspects of the Theory of Constraints 252Nature of the Constraint 254Definitions for the Financial Aspects of the Theory of Constraints 256Financial Aspects of the Theory of Constraints 257Opportunity Cost of Operations 259Locating the Constraint 260Management of the Constrained Resource 264Types of Policy Constraints 268Constraint Buffer 270Production Scheduling 273Batch Sizes 278Capacity Reduction Analysis 279Work Center Utilization 280Metrics 280Summary 282Chapter 13 Cost Reduction in Mergers and Acquisitions 283Introduction 283Integration Timing 283Integration Planning 284Synergy Realization 286Integration Manager 290Integration Team 291Integration Communications—Internal 292Integration Communications—External 293Employee Integration—Qualification Assessment 294Employee Integration—Job Positioning 296Employee Integration—Relocations 297Employee Integration—Key Employees 297Layoffs 300Compensation Integration 301Sales Integration 302Process Integration 303Technology Integration 304Metrics 305Integration Pacing 306Summary 307Index 309