Total Cost Structure

Cost Structure

And there’s the issue of direct vs. indirect costs. Indirect costs can often be larger than direct labor and direct materials costs.

ALL costs are targets for Lean Cost Reduction!

This figure is one way to depict the various components of cost.   Simply put, even your CEO’s salary eventually makes it to the COGS (Cost of Goods Sold) element of the business financial statement.  We must figure out ways to significantly reduce costs in order to maintain or improve profitability.

There’s a difference between the “western” profit model and Toyota’s.

Western thinking:   Cost + Profits = Selling Price

Toyota thinking:  Selling Price – Costs = Profits

The difference here is quite profound!  Selling Price is NOT something the producer can pre-determine.   It is totally controlled by the market.

Therefore, if we work on taking the market-determined Selling Price and subtracting the COGS, we end up with Profit.   Cost is the key to profitability!  And cost is a “designed-in” feature of the business itself.

We can help you analyze the various elements of cost with the aim of dramatically reducing each of them to increase your profitability.  This is done in a workshop setting with these participants:

Finance & Accounting

Senior Management

Research & Development

Marketing & Sales

Human Resoures

Value Steam Management

Product Designers

Cost Reduction Workshop:

JCM Work Designs/The Lean Sigma Team can design and conduct this workshop to meet your specific needs.  Please contact us for a formal proposal.

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