- Cost control is a critical aspect of the management of a company.
- Cost control is the entire system by which costs are managed, contained, and documented and consists of the defined framework surrounding procurement, i.e. planning (both procurement planning and budgeting), regular price surveys, competitive contract awards, procurement tracking, program reviews, and audits.
- Purchasing can employ a number of methods to reduce administrative costs, purchase prices and inventory carrying costs. Prevalent methods are:
1. Cost -Reduction programs
2. Price change management programs
3. Volume leverage contracts
4. Systems contracts n stockless purchasing
5. Managing supplier relationship.
Cost- Reduction Programs.
1. Supplier development2. Development of competition
3. Supplier cost reduction
4. Early Supplier Involvement (ESI)
5. Material substitution
6. Standardisation
7. Make/buy/lease analysis
8. Value analysis
9. Yield improvement/scrap reduction
10. Change in tolerances
11. Review to improve payment terms/conditions
12. Volume buying process changes
- Cost reduction occurs when firm is paying a lower price .
- Cost avoidance is the amount that would have been paid less the amount actually paid.
