Cost reduction is dependent on the attitude of mind

A lot is discussed about the cost reduction strategies. During the days at the organisation where I worked, a lot of talk would revolve around cost reduction and how that can be achieved.

Today's economics class laid a stepping stone for me to think the cost reduction altogether from a different angle. Though this examples might look simpler, but they have been effective in reducing or saving the cost significantly.

Ambuja cements in Gujarat had to transport large consignment of cements to other parts of the country. With the increase of oil price, the cost incurred in the road and rail was on the increasing trend. In order to mitigate the effect, they bought ships and barges in order to transport consignment of cements to other places like Mumbai, Managalore, Cochin, Chennai and Visakapatnam. Their thought process of purchasing ship and transferring huge consignment provided a cost-effective solution for them.

Another example is realted to John D. Rockefeller, who was an oil magnet in US during late 19th century. While going around the refinery, he moved into the production division. In those days, men were involved in filling the oil in the barrel and riveting the barrel with nails. Rockfeller noticed that ten nails were used for riveting the barrel. He enquired the use of 10 nails to the employee but of no use. The research team and the production manager also were of no help in providing answer to him.

Rockefeller ordered his employees to rivet using only 7 nails and saw that the oil spilled over. Then he asked them to use 8 nails. The oil did not spill but there was seepage if it is rolled across or handled roughly. Later, the use of 9 nails solved the issue of spilling. Rockefeller patented the use of 9 nails as soon as he returned to New York, his hometown. We would all be surprised that by eliminating the use of 1 nail per barrel saved them thousands of dollars for the firm. One would not have expected such a saving !!!!

How come printers in Sivakasi are more effective and able to offer service at lower cost? Quite a huge number of printing works are being done at Sivakasi. Lets see why? The printing operation consists of using 4 colors. The basic three colors: Red, Blue, Yellow. The fourth color Black is used to increase the depth in colors. The printing rods are used for this operation and depending on the color required, the rods would be setup. If another job requires different coloring, the color composition must be setup different and the rods has to be cleaned thoroughly. The cleaning of rods between the two jobs require close to 2 hours and effective cleaning is required. This process is known as Make Ready Time. Eventually there is a loss of time.

This hurdle is overcome in Sivakasi by using 4 machines simulataeously. The 4 machines would have only one color (red, blue, yellow, black) setup respectively. Lets say a job printing that required only combination blue,red and black. They would use the machine with Blue color for printing the blue, followed by red and then black. Hence, there would not be any stoppage in between. The machine would be running continuously for 24 hours and produces more output at any given time.

Again, its all the way we look at things. Lets all think to reduce cost effectively and efficiently, rather than cutting on the coffees or other freebies offered to the employees, as it being done today. :-)