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What is the function of a cost analysis in cost reduction?


Any study to reduce manufacturing cost must start with an understanding of why and where costs are incurred.

Manufacturing costs are normally ascribed to materials, labour and overheads. Before starting to consider how these costs may be reduced it is necessary to know at what stage of the manufacturing process they are incurred. It is also important to ensure that costs associated with delays and work-in-progress are included. The analysis usually breaks the manufacturing process into elements which are often related to process activities such as material preparation, welding and finishing.

Once this information has been gathered it is usual to focus initial efforts on those activities which are incurring the greatest cost.

When improvements are introduced, cost analysis is also the means by which these are measured.

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