Manufacturing Cost Reduction
The key to manufacturing standard cost reduction is to first identify the cost goals based on the pricing forecast and the company's business financial model. In other words, manufacturing cost reduction is a top-down process. Operations has little control over market pricing and therefore the process has to start with pricing assumptions. Then, based on the pricing forecast and the expected margins, goals can be set for manufacturing cost.
These goals can then be made reality for the business unit based on a manufacturing cost reduction plan that sets out the detailed tasks to be accomplished. Conversion costs must be in line with market expectations and the market is not controllable. The DCI model for manufacturing cost reduction uses the demand forecast as a given, and focuses on controlling the elements of cost that can be controlled.