Programmed Cost Improvement (CIP)

1.0   What Is Programmed Cost Improvement?

It is a participative program for all management layers.   It will result in  cost consciousness becoming an integral part of a managers job.

2.0   What Are The Objectives ?

The broad objectives are as follows:

to provide a systematic way to submit, evaluate and instal proposals for cutting operating costs.

to stimulate creative thinking in all areas of managerial responsibility.

to develop a more efficient, more economical operation.

to measure participation and performance against division-wide plans for cost reduction.

3.0   Why CIP?

Rising costs mandate continuos cost improvement just to maintain the current profitability.

3.1   What is new about CIP ?

The work in cost improvement is an old story. Almost every organisation has done cost reduction in some ways but due to the preoccupations of operating responsibilities this activity generally tends to become nobodys job.

It is in this context that MKRC's programme is unique in that it channelises cost improvement effort into a formalised activity, which will stimulate, evaluate and assure speedy adoption of planned and measurable savings proposals that actually result in cost savings.

3.2   What is the scope of CIP?

The scope of "Programmed Cost Improvement" is the total business system, rather that bits and pieces. This means that every division and department and every aspect of the business lends itself for CIP.

4.0   What Is The Potential for CIP ?

It has been estimated that 3 paise reduction in cost of sales rupee will result in the equivalent of the profit on a 27% increase in sales, assuming a profit rate of 10%.

4.1   MKRC's Experience?

Some of the MKRC success stories in Cost Improvement are given in Annexure 1. Our experience based on dealing with over 100 companies in India, Malaysia, Singapore and Indonesia is that:

·         It is possible to realise a 3% reduction in total operating costs year after year.

·         These savings can be verified by internal audit and finance divisions.

·         Cost reduction can be effected in all areas of business

·         When properly implemented CIP will create an organisation wide movement which will result in savings year after year

·         CIP is an organisational culture and not a technique. Once CIP culture is imbibed managers will use any and all techniques which will help them to effect cost savings

5.0   Spin Off's Of CIP

Other major benefits of the CIP programme are :

Ability to maintain leadership in technology, prices, quality and wage levels.

Improved organizational culture with a proactive approach.

improved inter-divisional communications and co-operation.

organization wide unified approach to problem solving.

sharing of experience and synergy.

6.0   Conclusion

Apart from the savings, the greatest benefit of the programme is the healthy way, in which it stimulates cost consciousness in Management and supervisory personnel. Cost consciousness is a state of mind. To be kept alive it needs constant attention. And that is what the CIP is for.

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Last modified: January 31, 2005