An alternative approach to cost reduction
January 22, 2013
We might expect businesses to take every opportunity to deliver stretching and sustainable cost reduction, never more so than in times of austerity.
Purchasing managers I have met tell a different story. Most have cost reduction objectives and many receive bonuses based on it. The target set is often 5 per cent, which is hardly stretching, on the basis, presumably, that 10 per cent seems too much and 0 per cent is not a reduction.
Salespeople have also asked me: “What is this ‘buyer’s 5 per cent’ we are asked for?” Sellers often respond by adding 10 per cent to their price so that they can take 5 per cent off: the target is achieved, everyone gets a bonus and the price goes up. (more…)
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