Cost Saving is reduction in cost that has tangible results. Direct Cost Saving such as lower prices paid and indirect cost savings like improved efficiency and productivity.
Cost avoidance is preventing or reduce suppliers price increase.
When suppliers actual cost increase, price increase are likely. One way to prevent or minimize such price increase is to invest in Supplier Development.
For Cost reduction we need to understand the underlying cost drivers to determine appropriate cost reduction approach.
Cost reduction are generally achieve by -in form of Price Reduction, Rebates, Incentives, Discounts, Signing Bonuses, Supplier contributions etc.
To achieve cost reduction in our organization we should establish a proper cost management program. Following issues are to be considered when establishing a cost management program –