Meeting KPIs Through Cost Reduction  
 
 

A manufacturing company is facing declining profit through increasing production costs. Although several new products are proving popular in the market, the new products are not bringing in the expected increase in profit. Production costs from extra labour and energy use are rising because of the precision machining required to produce the new products. There are two ways of tackling this problem -

  • Raising prices (which may trigger consumer resistance) or ...
  • Reducing costs

The company sets new KPIs to reduce costs. Change the figures to see what happens to profit.

 
 
  You chose   You chose

Reduce waste by %

Lower energy use by %

%

%

Drop materials costs by %

Reduce labour costs by %

%

%

   
Current turnover =
$1,500,000.00		 Increased profit =
$0.00

New total turnover =
$1,500,000.00

Note: Current costs are allocated as:
Waste= $50,000; Energy Costs= $450,000; Raw materials= $500,000; Labour= $500,000