What is a method of reducing cost by identifying parts in different products that are common...

What is a method of reducing cost by identifying parts in different products that are common and interchangeable?

Expert Solution

Cost Reduction is an important aspect for any business since it directly affects the Return on Investment. Every entity needs to find ways to reduce cost to the minimum so as to maximise the profit without affecting the quality of products or services significantly.

In entities with Multi-Product Manufacturing Facility, it may so happen that the products have some parts which are common and can be used interchangeably. However the entity may not have been doing the same.

In such situation,the following steps shall be taken:

a. Prepare a product wise parts sheet.

b. Compare the products and find parts that are identical and can be exchanged with one another.

c. Among those identified, find the lowest cost part which can be used in all products. Reduce the inventory of other identical parts which are relatively costlier.

d. Restrict new orders untill inventory of such lowest cost part is not upto the reorder level.

ekkarill92 answered 2 years ago

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